Advanced Estate Planning

From a general sense, most estate plans are pretty straightforward and simple to assemble, with quality communication and feedback from the estate owner. There can be a number of documents to produce, but the work is not very complex.

However, for some of the higher-net-worth clients who are business owners – and especially those with family businesses and international business across continents and oceans – putting together an effective estate plan that covers everything can be a bit more complicated and have more moving parts than a “traditional” estate plan.

Our estate planning professionals are experts at even the most advanced estate planning. Our staff makes sure they understand your needs and work through all your details so you have a comprehensive estate plan that avoids probate, mitigates taxes, and ensures a smooth passing of legacy to future generations.

There are several tools at our disposal that are above more “traditional” estate planning ideas that are necessary to reduce taxes for a higher net worth client. Here are some of the advanced estate planning tools we use on a daily basis:

FLP: Family Limited Partnership

A family limited partnership is sort of like a business arrangement, except the “business” is the family, and all the family members are part of the partnership. An FLP saves on estate and gift taxes when assets under the FLP are transferred.

Benefits of FLPs

Once an FLP is established and assets are put under its umbrella, partnership “shares” (or interests) can be gifted to children and other beneficiaries. When this is done, the value of the gift lowers the overall value of the estate by that amount, which means less value that would be subject to taxes for your heirs. Also, the transfer of the asset(s) can be made using the gift-tax exclusion, which means there is no gift tax paid by the giver.

Also, the value of the interest is valued less than the value of the underlying assets in the partnership thanks to a “minority discount.” This can also help with tax savings while you still have direct control over the assets in the partnership. A third benefit is that since an FLP, when set up properly, does not distribute earnings, the assets in the FLP can be protected from creditors.

QPRT: Qualified Personal Residence Trust

Many high-net worth people have homes, and many have high-value homes. And a house is a solid investment, and a home is an asset that develops fond family memories. It’s worthwhile to want to pass on that asset to children and loved ones, but if it is a high-value property that could be a problematic situation in terms of the estate value and tax ramifications. Oftentimes, setting up a trust is the best option for our clients.

Why use a Qualified Personal Residence Trust?

One of the beauties of a QPRT is that you can create it and put your residence inside it while you are still living in it – there is no need to move out before protecting it. With a QPRT, you can gift your home to an heir at a huge discount, and save on taxes by freezing the value of the home.

What you do is transfer the title of the home into the QPRT, and specifying a certain number of years that you will retain the right to live in the home. Once you reach the end of that timeframe, the home (and any appreciated value) passes to your designated beneficiaries. You may still live in the house after that period is over, but to avoid having the home included in the estate, you would have to pay rent to the heir and now current owner (there may be in income-tax hit for the rent payment, however).

If you pass away before the “grace period” ends (say, you set to live in the house for 10 years after setting up the trust, and you pass away at eight years), however, the house becomes part of the estate for tax purposes. But as long as you are healthy and still in the house after the period, the value of the home is not included, which will greatly reduce the value of the estate that is subject to taxation.

ILIT: Irrevocable Life Insurance Trust

Did you know that life insurance proceeds are actually subject to taxation?

If it’s not set up correctly, that $1 million policy won’t actually give $1 million in proceeds to your beneficiaries when you pass away; if your estate is valued high enough to be subject to taxes, life insurance proceeds can be taxed at estate tax rates, even as they’re not subject to the much lower income tax rate. Depending on your state, that $1 million benefit may only be $500,000 – or even less.

Using Irrevocable Life Insurance Trusts To Protect Your Wealth

How this works is, the policy owner and the beneficiary will be the ones in the trust when it’s established, and the policy goes into the trust to be shielded from estate tax. Once the insured passes away, the proceeds go to the trust, and the cash can be used to pay debts, pay living expenses or other items with the remainder given to the beneficiary. And the money would be separate from the estate, which means it’s not part of the estate, and the beneficiary gets the money as part of a gift exemption which precludes it from tax implications.

An ILIT can be set up in a a number of ways based on your situation, so your insurance proceeds can benefit who you want to benefit – even if you are on your fourth marriage, have a dysfunctional relationship with your own children or stepchildren, or have a good relationship with your previous spouses.

Simple, Complex: An Estate Plan is Worth It

Whether you have a relatively small estate, or a large and complex one, an estate plan is necessary to ensure that your legacy is carried forward to future generations in the way you wish, and not at the behest of some probate court judge.

Contact our estate-planning professionals today for a free consultation about your particular estate so we can advise you on the best path to ensuring your legacy on your terms. Your family deserves your legacy, not the government.

But that doesn’t happen automatically. You have to do your part by actually setting up an estate plan, so make the appointment now while you still can. Securing your family’s future is absolutely essential to leaving a lasting legacy.