Build Your Wealth – Consider Some Advanced Estate Planning Strategies

As we begin the new year, you need to not only get your basic estate planning documents in place – such as your last will and testament and your durable power of attorney – but you also should consider some advanced estate planning techniques.

Engaging in some more sophisticated estate planning can be a great way to build your wealth now so that you have more to give in the future. Below, we will discuss several advanced estate planning techniques that may work for you. As with go through them, remember that you can learn more about how each one applies to your own personal situation by speaking with an advanced estate planning attorney . 

At Doane & Doane, we have several seasoned attorneys who can take you through all of your advanced estate planning options, and help you balance which ones might be the best for you. We welcome you to call us at 561-656-0200. We understand what makes a good estate plan, and we are ready to help you.

What is a qualified personal residence trust (QPRT)?  It is an advanced estate planning technique in which you use a personal residence as part of a trust that will eventually pass on to your family. The benefit of a QPRT is that you essentially can transfer a residence for less than its full value while enjoying the benefits of the personal residence during the length of the trust.

Here is how it works. You would fund your trust with a personal residence. In other words, you as the trust grantor would transfer ownership of the personal residence into the trust. You would make sure that the trust term is shorter than your life expectancy. When the trust terminates at the end of the term, the residence either passes outright to your children (or whomever you designate) or in further trust. After the termination of the trust, you would still have use of the residence, but you would need to pay fair market rent to do so.

How does the residence get transferred at less than full value? That occurs because, for gift tax purposes, the value of the gift to the trust is equal to the full value of the residence minus the value of the right, retained by you the grantor, to use the residence during the trust term.  

To learn more about this technique, be sure to talk to an advanced estate planning attorney. There are several pitfalls with this trust, including issues if the grantor does not survive the trust term as expected. So, consider contacting Doane & Doane to learn more.    

As the title suggests, a sale to a grantor trust is actually selling assets to a trust. Here is how it works. You the grantor create a “grantor trust.” You then make a gift to that trust. You are designated as the owner of the trust for income tax purposes. You then give or “sell” assets to the trust for fair market value, and in return you get a note for the amount of the sales price. During the term of the note, the trust pays money to you. If you die during the note’s term, the remaining balance is part of your gross estate for tax purposes.  

What is the benefit of this technique? Provided that the assets sold to the trust appreciate in value at a higher rate than the interest rate on the note (which is expected), then the appreciation on the assets does not become part of the grantor’s estate. Also, there are no income tax consequences because you, as the owner of the grantor trust, are seen as both the buyer and seller of the assets.  

Of course, there are some caveats and other filing issues relevant to this complex strategy, so consider speaking with an advanced estate planning attorney to see if you can obtain a benefit from a sale to a grantor trust. 

A GRAT is a way to transfer the largest amount to beneficiaries at the lowest possible tax cost. Here is how they work. First, you would transfer securities (that you expect to increase in value in the next decade) into an irrevocable trust that should last for a fixed number of years, like 10 years. You then receive an annual income (a fixed amount which makes it like an annuity) from the trust. And, after ten years the assets pass to your beneficiaries.  

GRAT’s work because the trust is irrevocable. So, the moment the trust is created the taxable gift has been made to the beneficiaries. But, the value that can be taxed is reduced because of the income payments made back to the grantor. The benefit comes because you as the grantor will get fixed income payments from the trust, yet, the trust assets are expected to grow at a faster pace than the interest income. Hence a bigger gift to beneficiaries at the lowest possible tax.

The downside to a GRAT is that you, the grantor, lose control over the trust once it is created, meaning that you cannot make buy and sell decisions connected to the trust. Also, if you die before the termination of the trust, the full value of the assets in the trust will be included as assets in your taxable estate. That is why this type of technique is recommended for younger grantors with a longer life expectancy.     

At Doane & Doane, we have the resources and experience with all of the above-advanced estate planning strategies to help you. Having handled many, many probate matters in the past, we have seen first-hand how challenging disputes can arise when inheritance comes into play, and when the parents are not clear about their wishes ahead of time. Let us help you avoid those possible disputes by creating a thoughtful, sophisticated estate plan now.  

 So, if you think it is now time to get started on your own estate plan, give us a call. Our advanced estate planning attorneys in Palm Beach are ready to assist you and get you that peace of mind you need. Call Doane & Doane today for more information at 561-656-0200 .      

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