Planning Ideas to Help You

2021 is around the corner and the election is over.

As a follow up to our November 24, 2020 Blog post, here are some planning ideas that could make a big difference for your family and your legacy.

  1. Asset Gift or Sale to Family Bank Trusts or Bloodline Preservation Trusts

Clients with income-generating real property or business interests that are anticipated to appreciate in value can freeze the value for estate tax purposes and disinherit the IRS from taxing such assets at your death.  A gift or an installment sale to a Family Bank Trust or Bloodline Preservation Trust allows you smoothly move property such as real estate, investments or a family business to your own custom drafted trust for the benefit of your family for generations.

With interest rates currently so low, property gifted or sold to the trust is more likely to earn a higher rate of return than the interest on the loan where you sell a business to an irrevocable trust.  Asset appreciation will accrue to the trust rather than in your estate.  Once gifted or sold to the Trust, the property is no longer deemed to be a part of your taxable estate.  (AKA “the IRS is disinherited”)

The general rule, Family Bank Trusts or Bloodline Preservation Trusts are drafted as grantor Trusts, this strategy requires that you be prepared to continue to pay income tax on the income generated by the trust property.  That is not a bad thing as paying that income tax acts like an ongoing gift and the income generated in the trust continues to accumulate.

  1. Spousal Lifetime Access Trust

The Spousal Lifetime Access Trust (SLAT) strategy allows you to make a gift of property into an irrevocable trust for the benefit of your spouse (as a beneficiary of the trust) and other beneficiaries (children or grandchildren) if you wish. The transfer to the trust is intentionally designed to not qualify for the unlimited marital deduction so that the gifting spouse’s estate exemption can be more fully utilized and the appreciation on the property transferred to the SLAT will not be subject to future gift or estate tax.

Model clients for a SLAT strategy are happily married couples who own property that is anticipated to appreciate and can transfer property irrevocably without endangering their current standard of living.

  1. Irrevocable Life Insurance Trust

Irrevocable Life Insurance Trusts (ILITs) have not been utilized recently as they were in the past.  This strategy is highly effective in an environment where the estate and gift tax exemption amounts may be reduced significantly in the near future under new rules, November 24, 2020 Blog, putting you in a “use it or lose it” position.

This technique calls for you to transfer property (usually cash or cash and a life insurance policy) to an irrevocable trust.  The transfer can be made all in one year and may reduce your lifetime gift tax exemption to some extent. The trustee uses the cash to pay the premiums on a life insurance policy in the trust. The death benefit passes to the trust tax-free and on to the trust beneficiaries outside of your estate and therefore free of estate taxes. You must typically have sufficient cash reserves to contribute to the trust and be healthy enough to qualify for a life insurance policy.

It is crucial to think about these potential planning opportunities to help move wealth estate tax free to the next generation or a spouse.

We Are Here to Help

No one knows for sure what the future holds but know that here at the Borkuslaw Group we will continue to examine tax law developments closely and keep you updated as the rules evolve.

We are always here to guide you through your family’s legacy planning, tax planning, business succession planning and estate planning.

Contact our team at Borkuslaw Group today and make a live online appointment!

Please note that information contained in this news alert is not and should not be construed as legal advice or opinion nor does this information alert create an attorney-client relationship.

About the Author: Randall Borkus

We believe that business succession, asset protection and estate planning are less about numbers and much more about helping people preserve, protect, and provide for who and what is most important to them.