ADVANCED ESTATE PLANNING

Advanced estate planning focuses primarily on reducing transfer taxes and income taxes. Under current federal law, there are three taxes that are imposed on the transfer of assets: the gift tax, the estate tax, and the generation-skipping transfer tax ("GSTT"). In addition to the transfer taxes that may apply, income tax can also reduce transfers. The gift tax applies to transfers made during life, the estate tax applies to transfers at death, and the generation-skipping transfer tax applies to transfers during life or at death that skip the children's generation and pass to "skip persons", who are generally grandchildren and those in lower generations.

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ADVANCED ESTATE PLANNING IN GENERAL

Here is a general list of various advanced estate planning techniques:

Creation of an Irrevocable Life Insurance (Wealth Replacement) Trust

To hold life insurance
To provide lifetime asset protection
To provide estate tax protection at death

[For more information on Irrevocable Life Insurance Trust see Topic Irrevocable Life Insurance Trusts]

Creation of a Lifetime Gifting Program

To significantly reduce estate and generation-skipping transfer taxes
To provide tax-free gifts to family members
To provide tax-free gifts to irrevocable trusts

Creation of a Family Limited Liability Company or Partnership

To provide asset protection
To centralize management of assets
To reduce income taxes

Creation of a Qualified Personal Residence Trust

To transfer your residence, including future appreciation, to your beneficiaries in an asset protected manner
To maintain control during your lifetime
To reduce estate taxes

Creation of a Grantor Retained Annuity Trust

To transfer assets to your beneficiaries in an asset protected manner
To generate a steady income stream for the trust term
To allow you to freeze the value of highly appreciating assets for estate tax purposes

Creation of a Charitable Remainder Trust

To defer immediate capital gain tax on sale of appreciated assets
To generate a current-year income tax deduction on transferred assets
To provide a gift to charity at the end of the trust term
To reduce estate taxes

Creation of a Charitable Lead Trust

To provide annual gifts to charity during the trust term
To reduce or eliminate estate taxes
To provide for a one-time income tax deduction in certain circumstances

Creation of an Irrevocable Grantor Trust

To provide leveraged transfers to beneficiaries in an asset protected manner (the leverage occurs by your payment of the trust income tax)
To provide a vehicle to purchase your assets without incurring income tax
To reduce estate taxes

Invest in College Savings Plans (529 Plans)

To pay for the higher education of children or grandchildren
To maintain control over assets during your lifetime
To reduce estate taxes

Planning for Tax-Qualified Plans

To protect current lifestyle
To minimize income taxes
To protect these assets from lawsuits
To reduce estate and generation-skipping transfer taxes

Stand-Alone Trust for Tax-Qualified Plans

To transfer assets to your beneficiaries in an asset-protected manner
To defer income tax on tax-qualified plans as long as possible
To save estate and generation-skipping transfer tax

Inheritor's Trust

To provide creditor and divorce protection for your own inheritance
To save estate and generation-skipping transfer tax

Stand-Alone Educational Trust

To maintain control over your assets during your incapacity and after death
To transfer assets to your beneficiaries in an asset-protected manner

Revocable Gift Trust

To transfer assets to your beneficiaries in an asset-protected manner
To save estate and generation-skipping transfer tax

Domestic (or Offshore) Self-Settled Asset Protection Trust

To protect your assets from lawsuits
To transfer assets to your beneficiaries in an asset-protected manner
To reduce estate and generation-skipping transfer taxes

Family Bank Trust (Lifetime Bypass Trust)

To protect your assets from lawsuits
To transfer assets to your beneficiaries in an asset-protected manner
To reduce estate and generation-skipping transfer taxes

Minor's Trust

To protect younger beneficiaries from themselves
To train beneficiaries to become financially responsible
To provide planning for younger beneficiaries

Stay Bonus

To ensure that key employees remain in the business after your death
To preserve the value of the business

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INTRODUCTION TO IRREVOCABLE LIFE INSURANCE TRUSTS

Life insurance held in an irrevocable life insurance trust (ILIT) is one of the most efficient estate planning tools available. It requires very little complication after the initial creation and set up. This strategy also has a relatively low cost of administration.

An ILIT is an irrevocable trust designed to hold a life insurance policy on, typically, one spouse, although, they are equally effective for second-to-die life insurance policies. The ILIT is created and designed in accordance with the clients' goals for the use of the insurance proceeds.

Because the trust is irrevocable, because the creator of the trust is not a beneficiary and because the creator of the trust retains no control over the trust or its contents, when administered correctly, the entire value of the contents of the trust (life insurance proceeds) are not counted in the taxable estate of the creator when he or she dies.

You start by creating the Irrevocable Life Insurance Trust (ILIT).¹
The trustee will obtain a taxpayer identification number for the Trust.²
The trustee opens an account for the ILIT.
The Trustor makes gifts of cash each year to the trust sufficient to pay the annual premiums and any maintenance fees.
The Trustor notifies the trustee that such gifts have been made.
Your trustee sends out notices to the trust beneficiaries. These are commonly known as "Crummey" notices.
Although not required, your trustee may wish to obtain a receipt from the beneficiary acknowledging that the beneficiary has received their notice.
Upon expiration of the notice period, the Trustee pays the insurance premium.
At your death, the insurance death benefits pass to your heirs free of estate and income tax pursuant to the terms of the trust.

An ILIT can be a very powerful and effective element to a well-designed estate plan, and can provide a great deal of benefit to you and to the beneficiaries you leave behind. As with any

¹ Note that the Creator of the ILIT would need to live at least 3 years from the transfer of the policies on the decedent's life to have the proceeds of the policies excluded from his or her estate.

² However, if the ILIT is a grantor trust for income tax purposes, then under Income Tax Regs. Â§671-4(b) the grantor trust is not required to obtain its own tax identification number, but uses the grantor's taxpayer identification number (i.e. SSN) instead.

sophisticated technique, there are certain administrative requirements and important documents to be maintained. Please contact our office for more information and to arrange a meeting.

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