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A Financial advisor's Role in estate Planning

A Financial Advisor’s Role in Estate Planning

A Financial Advisor’s Role in Estate Planning

 Katie Camann  November 3, 2020

A Financial Advisor’s Role in Estate Planning. When forming an estate plan, a financial advisor plays a crucial role. As a financial advisor, you are focused on the client’s finances, and you can help prevent important financial information and procedures from slipping through the cracks. Let’s explore some important aspects of a financial advisor’s role in the estate plan and how you can help clients plan for retirement and beyond.

How Does a Financial Advisor Help with Estate Planning?

Although you play an important role in the entire estate planning process, here are some of the most vital areas where you can help your clients as their financial advisor.

Retirement Planning

As a financial advisor, you can help set up 401(k)s, IRAs, and other retirement accounts for your clients as well as explain the tax benefits and beneficiary details for each one. You can also help them decide which type of account is best for their specific situation, financial goals, and budget.

Updating Beneficiaries

Since most estate plans involve investment accounts, retirement accounts, and insurance policies, all of which have beneficiary designations, it’s important that you ensure your clients keep these designations up to date. You can provide recommendations for adjusting beneficiaries after any significant life change, such as a divorce, remarriage, or death of a loved one.

Considering Significant Life Changes

In addition to affecting beneficiaries, a significant life change can also impact other pieces of your client’s estate plan. As their financial advisor, you can point out how these changes might affect their financial future and provide suggestions for adjusting their accounts, income, and the other financial pieces of their estate plan.

Planning for Long-Term Care

One of the most important aspects of an estate plan is long-term care. Some clients may plan ahead with trusts or Long-Term Care Insurance, while others might wait and conduct Medicaid planning once they need care. Either way, you can help by speaking to the financial ramifications of long-term care and helping them find a solution that works for their financial situation.

All in all, as their financial advisor, your role involves examining the financial impact of their estate plan and providing recommendations accordingly.

Other Important Professionals for Estate Planning

In addition to a financial advisor’s role in estate planning, other professionals also play important roles throughout the process. In many cases, you will work in tandem with these individuals to form an estate plan for your client. For starters, an attorney is crucial to provide necessary legal advice and documentation, such as power of attorney, for the client. Next, an insurance agent can help with any insurance products that may be included in the estate plan. It might also be helpful for your client to consult with a tax professional if their estate plan involves any potential tax consequences.

Read more related articles at:

Seven Ways Your Financial Advisor Can Protect Your Estate Plan

Estate Planning Strategies: How Your Financial Advisor Can Help

Also, read one of our previous Blogs at:

Why you should have a Financial Advisor help with your Estate Plan.

Click here to check out our On Demand Video about Estate Planning.

Estate Planning

Estate Planning Meets Tax Planning

Estate Planning Meets Tax Planning

 

Estate Planning Meets Tax Planning.  Not keeping a close eye on tax implications, often costs families tens of thousands of dollars or more, according to a recent article from Forbes, “Who Gets What—A Guide To Tax-Savvy Charitable Bequests.” The smartest solution for donations or inheritances is to consider your wishes, then use a laser-focus on the tax implications to each future recipient.

After the SECURE Act destroyed the stretch IRA strategy, heirs now have to pay income taxes on the IRA they receive within ten years of your passing. An inherited Roth IRA has an advantage in that it can continue to grow for ten more years after your death, and then be withdrawn tax free. After-tax dollars and life insurance proceeds are generally not subject to income taxes. However, all of these different inheritances will have tax consequences for your beneficiary.

What if your beneficiary is a tax-exempt charity?

Charities recognized by the IRS as being tax exempt don’t care what form your donation takes. They don’t have to pay taxes on any donations. Bequests of traditional IRAs, Roth IRAs, after-tax dollars, or life insurance are all equally welcome.

However, your heirs will face different tax implications, depending upon the type of assets they receive.

Let’s say you want to leave $100,000 to charity after you and your spouse die. You both have traditional IRAs and some after-tax dollars. For this example, let’s say your child is in the 24% tax bracket. Most estate plans instruct charitable bequests be made from after-tax funds, which are usually in the will or given through a revocable trust. Remember, your will cannot control the disposition of the IRAs or retirement plans, unless it is the designated beneficiary.

By naming a charity as a beneficiary in a will or trust, the money will be after-tax. The charity gets $100,000.

If you leave $100,000 to the charity through a traditional IRA and/or your retirement plan beneficiary designation, the charity still gets $100,000.

If your heirs received that amount, they’d have to pay taxes on it—in this example, $24,000. If they live in a state that taxes inherited IRAs or if they are in a higher tax bracket, their share of the $100,000 is even less. However, you have options.

Here’s one way to accomplish this. Let’s say you leave $100,000 to charity through your IRA beneficiary designations and $100,000 to your heirs through a will or revocable trust. The charity receives $100,000 and pays no tax. Your heirs also receive $100,000 and pay no federal tax.

A simple switch of who gets what saves your heirs $24,000 in taxes. That’s a welcome savings for your heirs, while the charity receives the same amount you wanted.

When considering who gets what in your estate plan, consider how the bequests are being given and what the tax implications will be. Talk with your estate planning attorney about structuring your estate plan with an eye to tax planning.

Reference: Forbes (Jan. 26, 2021) “Who Gets What—A Guide To Tax-Savvy Charitable Bequests”

Read more related articles at:

5 Estate Planning Tips to Keep Your Money in the Family

Estate Planning Strategies to Reduce Estate Taxes

Also, Read one of our previous Blogs at:

Big News for Trust Taxation

Click here to check out our On Demand Video about Estate Planning.

Asset Protection

About Asset Protection Plans

About Asset Protection Plans

BY

With the economy slowly plugging along and credit remaining tight, asset protection is still a hot topic. So what is asset protection, and how can you make an asset protection plan that will work for you and your family?

 

Asset Protection

Asset protection means keeping your property safe from being taken by someone who wins a lawsuit against you. It can range from a lawsuit related to a negligent act that you performed, such as causing a car accident, to a lawsuit related to the foreclosure of property for which you have stopped paying the mortgage.

How can you protect your assets from lawsuits? It is achieved through the process of asset protection planning, which means taking assets that are subject to creditors’ claims, called nonexempt assets, and repositioning them as assets that are out of the reach of creditors’ claims, called exempt assets.

Asset protection planning cannot begin when a judgment creditor is already on the horizon. Why? Because each state has laws that protect a judgment creditor against people who transfer their assets out of their names with the intent to hinder, delay, or defraud a creditor. In these situations, a court will see right through these “fraudulent” transfers and simply order that the transfers are reversed, and the assets turned over to pay the creditor.1 Instead, asset protection planning must begin long before there is any sign of a lawsuit. Aside from this, to put together a comprehensive asset protection plan you will need to integrate two important goals:

  • Your short term and long term financial goals
  • Your estate planning goals.

 

Financial Goals

In examining your short term and long term financial goals, you will learn about your current and future sources of income, how much money you will need to retire, and how much will be left over to pass on to your heirs through your estate plan after you die. It will then lead you to a detailed financial plan. Once your financial goals have been examined, and your financial plan is in place, you can review your current assets to determine if they are exempt from creditors and, if they are not, then reposition them to become exempt. A financial plan will also allow you to plan for positioning assets that you intend to acquire in the future to be protected from potential creditors.

Once you have your financial plan in place, you will know your current net worth and an estimate of how much wealth you can expect to accumulate in the future. From this information, you will be able to create a comprehensive estate plan. This plan will address issues such as who will take care of you and your assets if you become mentally incapacitated, who will take care of your minor children if you die unexpectedly, and who will manage your assets and take care of your spouse or other family members after you die. Your estate plan can also encompass asset protection planning through the use of advanced estate-planning techniques such as family limited liability companies and irrevocable trusts for you, your spouse, and your children or other beneficiaries.

Financial and Estate Planning Results

Once you have integrated your financial goals with your estate planning goals and positioned or repositioned your assets to be protected from creditors, you will have a comprehensive asset protection plan in place. Then, if a creditor holding a judgment against you does show up at your front door, you will be in a better position to negotiate a quick settlement for pennies on the dollar instead of having all of your hard-earned money on the table.

Most Common Mistake

As I warned above, if you try to start asset protection planning after a lawsuit has been filed against you, or even if before the lawsuit is filed you anticipate it being filed, then you will be exposing any asset protection planning that you attempt to do to attacks and reversal by a judge or jury. Unfortunately, too many people are learning far too late that asset protection planning is also long-term planning not something that can be done as a quick or temporary fix. Thus, the time to put your asset protection plan together is long before a lawsuit is on the horizon.

Read more related articles at:

The Basics of Asset Protection Planning – The Rules You Need To Know

How Does an Asset Protection Trust Work?

Also, read one of our previous Blogs at:

How Can I Protect Assets from Creditors?

Click here to check out our On Demand Video about Estate Planning.

Estate Planning

Do We Need Estate Planning?

Do We Need Estate Planning?

Estate planning also referred to as an EP, is not just about making a will, nor is it just for people who live in mansions. It is best described in the title of this article “Estate planning is an important strategy for arranging financial affairs and protecting heirs—here are five reasons why everyone needs an estate plan” from Business Insider. Estate planning is a plan for the future, for you, your spouse and those you love.

There are a number of reasons for estate planning:

  • Avoiding paying more federal and state taxes than necessary
  • Ensuring that assets are distributed as you want
  • Naming the people you choose for your own care, if you become incapacitated; and/or
  • Naming the people you choose to care for your minor children, if you and your spouse left them orphaned.

If that sounds like a lot to accomplish, it is. However, with the help of a trusted estate planning attorney, an EP can provide you with the peace of mind that comes with having all of the above.

If those decisions and designations are not made by you while you are alive and legally competent, the state law and the courts will determine who will get your assets, raise your children and how much your estate will pay in death taxes to state and federal governments. You can avoid that with an EP.

Here are the five key things about estate planning:

It’s more than a will.  It includes creating Durable Powers of Attorney to appoint individuals who will make medical and/or financial decisions, if you are not able to do so. The estate plan also contains Medical Directives to communicate your wishes about what kind of care you do or do not want, if you are so sick you cannot do so for yourself. The estate plan is where you can create Trusts to control how property passes from one person or one generation to the next.

Estate planning saves time, money, and angst. If you have a surviving spouse, they are usually the ones who serve as your executor. However, if you do not and if you do not have an estate plan, the court names a public administrator to distribute assets according to state law. While this is happening, no one can access your assets. There’s a lot of paperwork and a lot of legal fees. With a will, you name an executor who will take care of and gain access to most, if not all, of your assets and administer them according to your instructions.

Estate planning includes being sure that investment and retirement accounts with a beneficiary designation have been completed. If you don’t name a beneficiary, the asset goes through the probate court. If you fail to update your beneficiary designations, your ex or a person from your past may end up with your biggest assets.

Estate planning is also tax planning. While federal taxes only impact the very wealthy right now, that is likely to change in the future. States also have estate taxes and inheritance taxes of their own, at considerably lower exemption levels than federal taxes. If you wish your heirs to receive more of your money than the government, tax planning should be part of your estate plan.

The estate plan is also used to protect minor children. No one expects to die prematurely, and no one expects that two spouses with young children will die. However, it does happen, and if there is no will in place, then the court makes all the decisions: who will raise your children, and where, how their upbringing will be financed, or, if there are no available family members, if the children should become wards of the state and enter the foster care system. That’s probably not what you want.

The estate plan includes the identification of the person(s) you want to raise your children, and who will be in charge of the assets left in trust for the children, like proceeds from a life insurance policy. This can be the same person, but often the financial and child-rearing roles are divided between two trustworthy people. Naming an alternate for each position is also a good idea, just in case the primary people cannot serve.

Estate planning, finally, also takes care of you while you are living, with a power of attorney and healthcare proxy. That way someone you know, and trust can step in, if you are unable to take care of your legal and financial affairs.

Once your  plan is in place, remember that it is like your home: it needs to be updated every three or four years, or when there are big changes to tax law or in your life.

Reference: Business Insider (Jan. 14, 2021) “Estate planning is an important strategy for arranging financial affairs and protecting heirs—here are five reasons why everyone needs an estate plan”

Read more related articles at:

Do you need an estate plan?

5 Reasons You Need an Estate Plan

Also, read one of our previous Blogs at:

What Kind of Estate Planning Do I Need During the Pandemic?

Click here to check out our On Demand Video about Estate Planning.

lARRY kING

Did Larry King have an Estate Plan?

Did Larry King have an Estate Plan?

Larry King’s health was not good the past few years before he died in the hospital last week. He was 87, with a history of heart trouble, a stroke and then he got sick with the coronavirus. He was also paying spousal support as part of a lengthy divorce negotiation.

This was his seventh wife who outlasted all the others. Since the divorce wasn’t final, she’ll inherit much of his estimated $50 million estate, says Wealth Advisor’s recent article entitled “Two Bankruptcies, Seven Wives: Larry King’s Estate Planning Miracle.”

The King of Talk wasn’t an early success. He was bankrupt before he was 30 and filed again at 45, when most successful people start eying early retirement. However, Larry had large gambling debts, grand larceny charges for defrauding a business partner and many professional setbacks.

By the time he really became a household name on CNN, he’d already had five divorces to four women as well as one youthful annulment.

Under normal circumstances, this would mean depleted bank accounts, since the households multiplied, and income continues to be split among the exes. However, King continued to work, and while each bankruptcy reset his official net worth to zero, every contract negotiation kept the income flowing.

Since he died before finalizing the divorce, his current wife Shawn is believed to receive everything not otherwise assigned in his will.

If the divorce were a done deal, she would have gotten a lump sum payment and $300,000 in annual support. Shawn had argued that she needed $1 million a year, but now it looks like she inherits everything.

Shawn lists $7 million in assets in her own name, including a house in Utah. That’s usually a good start to a divorce settlement division of property, but she wanted more because Larry was still working.

In fact, only last year, he signed a trial podcast deal worth at least $5 million.

Reference: Wealth Advisor (Jan. 25, 2021) “Two Bankruptcies, Seven Wives: Larry King’s Estate Planning Miracle”

Read more related articles here:

Larry King had a secret will that excluded his wife — estate planning gets messy

Larry King’s Wife Shawn Contests His Amended Will, Claims He Had a ‘Secret Account’

Also, read one of our previous Blogs at:

Will James Brown’s Estate Finally Be Settled after 15 Years?

Click here to check out our On Demand Video about Estate Planning.

Robert Redford

Did Robert Redford Have a Business Exit Plan?

Did Robert Redford Have a Business Exit Plan?

Motley Fool’s recent article titled “What Robert Redford’s Sale of Sundance Can Teach Investors About Exit Planning” says that, in announcing the sale, Redford told the Salt Lake Tribune that he’s been thinking of selling for several years. However, he wanted to find the right partners. Broadreach and Cedar plan to upgrade the resort, add hotel rooms and build a new inn. The companies have also said that they will keep the resort sustainable and practicing measured growth, as well as also continuing to host the Sundance Film Festival.

The 2,600-acre resort has 1,845 acres of land saved from future development through a conservation easement and protective covenants. The 84-year-old actor has had a lifelong interest in the environment and in land stewardship. Redford and his family have also arranged with Utah Open Lands to create the Redford Family Elk Meadows Preserve at the base of Mt. Timpanogos. The gift will reduce Redford’s tax liability on his estate.

Both Broadreach and Cedar have extensive hospitality experience, but neither looks to have much ski resort experience. However, they’re working with Bill Jensen, an industry legend, who recently left his role as CEO of Telluride Ski and Golf Resort in Colorado.

Business exit and succession planning can be difficult—in part, because people don’t like to address such unwelcome topics. Most investors don’t have the luxury of waiting years to find the right buyer, but the Redford deal does show that planning ahead may be critical to creating a mechanism that supports the vision for the property.

When selling a large investment property, you must first understand why you’re selling, and your desired end result. Of course, a return on investment is nice, but there may be other considerations, like in Redford’s case. Another key is ascertaining the updated worth of what you’re selling. Get a valuation, especially with an irreplaceable asset.

The structure of the sale is important. You will likely be liable for tax on your capital gains, so ask an attorney. If you’re also structuring your estate plans at the same time, you’ll need to know what amount you can give and what your heirs may have to pay. Talk to an experienced estate planning attorney to be certain that you’re covering all the bases.

Reference: Motley Fool (Dec. 12, 2020) “What Robert Redford’s Sale of Sundance Can Teach Investors About Exit Planning”

Read more related articles at:

Estate Planning Terms

What Key Estate Planning Terms Should I Know?

What Key Estate Planning Terms Should I Know?

Estate planning can help you accomplish several objectives, including naming guardians for minor children, choosing healthcare agents to make decisions for you should you become ill, minimizing taxes so you can give more wealth to your heirs and saying how and to whom you would like to pass your estate at death.

Emmett Messenger Index’s recent article entitled “13 Estate Planning Terms You Need to Know” provides some important terms to understand as you consider your own estate plan.

Assets: This is anything a person owns. It can include a home and other real estate, bank accounts, life insurance, investments, furniture, jewelry, collectibles, art, and clothing.

Beneficiary: This is an individual or entity (like a charity) that gets a beneficial interest in an asset, such as an estate, trust, account, or insurance policy.

Distribution: A payment in cash or asset(s) to the beneficiary who’s designated to receive it.

Estate: All of the assets and debts left by a person at death.

Fiduciary: An individual with a legal obligation or duty to act primarily for another person’s benefit, such as a trustee or agent under a power of attorney.

Funding: The process of transferring or retitling assets to a trust. Note that a living trust will only avoid probate at the trustmaker’s death if it’s fully funded. A trustmaker also may be known as a grantor, settlor, or trustor.

Incapacitated or Incompetent: The situation when a person is unable to manage her own affairs, either temporarily or permanently, and often involves a lack of mental capacity.

Inheritance: These are assets received from someone who has died.

Probate: This is the orderly court-supervised process of distributing the assets of a person who has died.

Trust: This is a fiduciary relationship where a trustmaker gives a trustee the right to hold property or assets for the benefit of another party, known as the beneficiary. The trust is a written trust agreement that directs how the trust assets will be distributed to the beneficiary.

Will: A written document with directions for disposing of a person’s assets after their death. A will is enforced by a probate court. A will can provide for the nomination of a guardian for minor children.

Reference: Emmett Messenger Index (Oct. 28, 2020) “13 Estate Planning Terms You Need to Know”

Read more related articles at:

Estate Planning Glossary

Glossary of Estate Planning Terms ABA

Also, read one of our previous Blogs at:

Estate Planning Is a Gift and a Legacy for Loved Ones

Click here to check out our Master Class!

Retirement Planning

Why Planning Tasks Don’t Stop Because You’ve Retired

Why Planning Tasks Don’t Stop Because You’ve Retired

How you handle money and legal matters during retirement is more important than during your working years. It’s harder to bounce back from financial setbacks when you aren’t getting a regular paycheck. Managing finances and legal affairs to keep your savings intact and your estate plan current is part of your new responsibility as a retiree, says a recent article “7 Money Moves You Should Make After Retiring” from MoneyTalksNews.

  1. Review estate planning documents. One of the most important documents is your will, but you also need to review any power of attorney and trust documents. A will is used to specify what you want done with your property after you die. What happens if you die without a will? The state will step in and make those decisions for you.

If you marry, divorce, inherit or buy property, you should update your will to reflect your changed circumstances. The arrival of a new grandchild may make you want to change your beneficiaries.

Reviewing your will after retirement and then periodically afterwards can put your mind at ease. If you don’t have a will, now is the time to have one created with an experienced estate planning attorney. You may also need a living will, power of attorney and letter of intent.

  1. Review named beneficiaries. Beneficiary designations require updating anytime there is a change in your life. When you purchase life insurance, enroll in a pension plan or open an individual retirement account, you are often asked to name a beneficiary–the person who will inherit the proceeds when you die. These instructions take precedence over instructions in a will.
  2. Prepare for your funeral. No one wants to consider their own mortality, but helping your loved ones be financially prepared for your funeral is a gift. By planning your own funeral, including making arrangements for funds to be available to pay for it, you save your family of the burden of having to plan and pay for a funeral while they are grieving your loss. Planning in advance also gives you an opportunity to decide what type of funeral you want.
  3. Consider trimming transportation costs. If your household has two cars, but you could manage with one, consider paring down this expense. Seniors tend to pay higher rates than young people, so this is one way to trim your monthly expenses.
  4. Review emergency fund status. Having money set aside for unexpected expenses is more important now than when you were working. An emergency fund can help you avoid taking money out of retirement accounts, which costs you not only the funds themselves, but the potential growth of the funds and any taxes that might be due on withdrawals.
  5. Plan for Required Minimum Distributions (RMDs) and taxes. Once you celebrate your 72nd birthday, you’ll need to start taking RMDs from tax-deferred retirement accounts. If you miss an RMD deadline or don’t take out enough, you may have to pay a 50% tax penalty on the amount of money you did not withdraw. RMDs are treated as taxable income, so they may impact your federal income tax rate, as well as the “combined income” formula used to determine the extent to which your Social Security benefits are taxable.
  6. Do you still need life insurance? If your family is not dependent upon your income, now might be the time to drop life insurance policies. The main purpose of life insurance is to provide an income stream for loved ones, if you should die unexpectedly when you are working and raising a family. However, if you are retired, your children are grown and your spouse is not relying on your income, it may be time to let the policies lapse. On the other hand, if you can afford the premiums and wish to leave the proceeds to a spouse or your children, by all means keep the policy. However, check the beneficiary designation.

Reference: MoneyTalksNews (Oct. 9, 2020) “7 Money Moves You Should Make After Retiring”

Read more related articles at:

Retirement Planning Doesn’t Stop When You Retire-Investopedia

Retirement Planning Doesn’t Stop When You Retire-Forbes

16 Retirement Mistakes You Will Regret Forever-Kiplinger

Also, read one of our previous Blogs at:

How Do I Include Retirement Accounts in Estate Planning?

Click here to check out our Master Class!

financial advisors

Why you should have a Financial Advisor help with your Estate Plan.

Why you should have a Financial Advisor help with your Estate Plan.

Why should you have a Financial Advisor help with your Estate Plan? Believe it or not, you have an estate. In fact, nearly everyone does. Your estate is comprised of everything you own— your car, home, other real estate, checking and savings accounts, investments, life insurance, furniture, personal possessions. No matter how large or how modest, everyone has an estate and something in common—you can’t take it with you when you die.

When that happens—and it is a “when” and not an “if”—you probably want to control how those things are given to the people or organizations you care most about. To ensure your wishes are carried out, you need to provide instructions stating whom you want to receive something of yours, what you want them to receive, and when they are to receive it. You will, of course, want this to happen with the least amount paid in taxes, legal fees, and court costs. Ref: What is Estate Planning?

So, why should you have a Financial Advisor help with your Estate Plan? Estate planning can be complex, especially during your first consultation. Clients sometimes “blank” on questions because there is a lot of new information that they haven’t thought of until the time comes to plan for their future. Estate Plans are unique and tailored to each individual situation. Your financial advisor is an expert on your finances. It is your advisor’s job to know your financial goals and understand how your assets are titled. A good financial advisor knows how important it is to have a good estate plan to meet your long term financial goals.

What Is a Financial Advisor, and What Do They Do? Financial Advisors manage your money. They help you create a plan for meeting your financial goals, and they guide your progress along the way. They can help you save more, invest wisely, or reduce debt. A financial advisor offers assistance with, or, in some cases, conducts the complete management of your finances. The term “financial advisor” is used to describe a wide variety of people and services, including investment managers, financial consultants, and financial planners. The services provided by financial advisors will vary based on the type of advisor, but generally speaking, a financial advisor will assess your current financial situation including your assets, debts, and expenses, and identify areas for improvement. A good financial advisor will ask you about your goals and create a plan to help you reach them. That may mean calculating how much you should save for retirement, making sure you have an adequate emergency fund, offering tax-planning suggestions or helping you refinance or pay off debt.

Financial advisors also help invest your money, either by recommending specific investments or providing complete investment management. In some cases, you can choose which services you want or need based on the type of advisor you select. For example, a traditional in-person advisor will likely offer personalized, hands-on guidance for an ongoing fee.

Your Financial Advisor has your entire financial Blueprint, often at his or her fingertips. Estate Planning is often a much-advised step for your continued financial success. Estate Planning protects the hard work your Financial Planner has put into investing your finances and making the proper recommendations so that you can leave behind a financial Legacy to your loved ones. While Financial Advisors help you invest and grow your financial Nest Egg, Estate Planning Attorneys create plans that help you protect that Nest Egg throughout and beyond your lifetime. They provide peace of mind that all the hard work you’ve done amassing your personal wealth, and the care you’ve taken to save and invest, will be distributed exactly how you wish and will avoid as much taxation as possible. Estate Planning attorney’s can help you avoid Probate and future headaches for your loved ones at an already difficult time. Financial Advisors and Estate Planning Attorney’s work hand in hand to help you create and protect your Legacy.

Read more related articles here:

Here’s Why Financial Advisors are Important to an Estate Plan

Estate Planning Strategies: How Your Financial Advisor Can Help

Also, visit our website at:

For Professional Advisors

Also, read one of our previous blogs at;

Consider Funding a Trust with Life Insurance

Click here to check out our Master Class!

 

Pre Election

Pre-Election Estate Planning Includes a Vast Variety of Trusts

You might remember a flurry of activity in advance of the 2016 presidential election, when concerns about changes to the estate tax propelled many people to review their estate plans. In 2020, COVID-19 concerns have added to pre-presidential election worries. A recent article from Kiplinger, “Pre-Election Estate Planning Moves for High Net-Worth Families,” describes an extensive selection of trusts that can are used to protect wealth, and despite the title, not all of these trusts are just for the wealthy.

The time to make these changes is now, since there have been many instances where tax changes are made retroactively—something to keep in mind. The biggest opportunity is the ability to gift up to $11.58 million to another person free of transfer tax. However, there are many more.

Spousal Lifetime Access Trust (SLAT) The SLAT is an irrevocable trust created to benefit a spouse funded by a gift of assets, while the grantor-spouse is still living. The goal is to move assets out of the grantor spouse’s name into a trust to provide financial assistance to the spouse, while sheltering property from the spouse’s future creditors and taxable estate.

Beneficiary Defective Inheritor’s Trust (BDIT) The BDIT is an irrevocable trust structured so the beneficiary can manage and use assets but the assets are not included in their taxable estate.

Grantor Retained Annuity Trust (GRAT) The GRAT is also an irrevocable trust. The GRAT lets the grantor freeze the value of appreciating assets and transfer the growth at a discount for federal gift tax purposes. The grantor contributes assets in the trust and retains the right to receive an annuity from the trust, while earning a rate of return as specified by the IRS. GRATs are best in a low interest-rate environment because the appreciation of assets over the rate goes to the beneficiaries and at the end of the term of the trust, any leftover assets pass to the designated beneficiaries with little or no tax impact.

Gift or Sale of Interest in Family Partnerships. Family Limited Partnerships are used to transfer assets through partnership interests from one generation to the next. Retaining control of the property is part of the appeal. The partnerships may also be transferred at a discount to net asset value, which can reduce gift and estate tax liability.

Charitable Lead Trust (CLT). The CLT lets a grantor make a gift to a charitable organization while they are alive, while creating tax benefits for the grantor or their heirs. An annuity is paid to a charity for a set term, and when the term expires, the balance of the trust is available for the trust beneficiary.

Charitable Remainder Trust (CRT) The CRT is kind of like a reverse CLT. In a CRT, the grantor receives an income stream from the trust for a certain number of years. At the end of the trust term, the charitable organization receives the remaining assets. The grantor gets an immediate income tax charitable deduction when the CRT is funded, based on the present value of the estimated assets remaining after the end of the term.

These are a sampling of the types of trusts used to protect family’s assets. Your estate planning attorney will be able to determine if a trust is right for you and your family, and which one will be most advantageous for your situation.

Reference: Kiplinger (Aug. 16, 2020) “Pre-Election Estate Planning Moves for High Net-Worth Families”

Read more related articles at:

Pre-Election Estate Planning Moves for High-Net-Worth Families

Estate Planning in the 2020 Election Year

Also, read one of our previous blogs at:

Different Trusts for Different Estate Planning Purposes

Click here to check out our Master Class!

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