Advanced Estate Planning
While every family should have their own estate plan, it is crucial for wealthy individuals and families. Why? To put it bluntly, without a plan you have more to lose than people of more modest means. Similarly, with a plan designed and implemented by an experienced DC estate planning attorney, you have considerably more to gain.
Beyond the basics of putting your affairs in order, your plan should address issues such as:
- Assuring the continuance of your lifestyle and the protection of your assets
- Passing your values and work ethic to heirs
- Significantly reducing income, estate, gift and generation skipping taxes
- Keeping your affairs private
- Making sure your heirs are mature enough to handle a large inheritance on their own and, if they are not, taking steps to protect the inheritance until they are indeed ready
- Protecting your heirs’ inheritance if they become divorced, remarry or fall under the influence of unscrupulous predators
- Managing the value of your business interests, if any
- Ensuring your lasting legacy and impact on society
At the Law Offices of Clifford M. Cohen, we have years of experience utilizing the advanced estate planning tools necessary to meet the sophisticated needs of affluent families. As a family of means, you owe it to yourself and your loved ones to contact us at your earliest convenience to discuss your particular needs, concerns and goals.
Our advanced estate planning services include:
- Life Insurance Trusts
- Dynasty Trusts
- Irrevocable Trusts
- Family Limited Partnerships (FLPs) and Limited Liability Companies (LLCs)
- Grantor Trusts
- Grantor Retained Annuity Trusts (GRATs)
- Captive Insurance Companies (CICs)
- Cash Balance Retirement Plans
- Intra-Family Loans
- Self Cancelling Installment Notes (SCINs)
- Installment Sales to Grantor Trusts
- Qualified Personal Residence Trusts
- Gift Programs
- Retirement Trusts
- Minors’ Trusts
- Generation-Skipping Trusts
- Tax Planning
Let’s look at some of these in greater detail.
Irrevocable Life Insurance Trust
Insurance proceeds can provide a much-needed source of cash to a grieving family after one’s death. For those with taxable estates however, much of the benefit is often wasted. This is because although proceeds of life insurance are received income tax free by a beneficiary, they are nonetheless included in the estate of the insured owner of the policy and thus subject to estate tax. In order to prevent this undesirable result, we often advise clients to place ownership of their life insurance policies in a separate trust, known as an Irrevocable Life Insurance Trust (ILIT). If properly drafted, use of the ILIT will remove the life insurance proceeds from the insured’s estate thereby enhancing the value of the estate and providing additional cash liquidity for the family.
A “Dynasty Trust” is an irrevocable trust that is designed to continue for the lives of children, grandchildren and even great-grandchildren. Because transfers to successor generations are subject to the generation skipping transfer tax, (GST) special care must be taken in drafting to avoid, or minimize the tax. Each taxpayer has a GST exemption that can be placed in a trust that will continue on for generations with no estate taxes imposed after the parents have died. When this tax is successfully avoided, then assets can accumulate for generations completely outside the estate and gift tax systems, thereby preserving family wealth for future generations.
Family Limited Partnerships
A Family Limited Partnerships (FLP) is an effective estate planning vehicle used to reduce estate and gift taxes while maintaining control of assets during the grantor’s lifetime. The grantor typically transfers property into the FLP and then makes gifts of limited partnership interests during his or her lifetime, usually at a discounted value. This structure allows the grantor to remove assets and future appreciation from his estate. Additionally, because the grantor transfers only limited partnership interests to family members and retains a general partnership interest, he keeps complete control over management of the assets during his lifetime. Essentially, an FLP is like a family’s very own private hedge fund allowing family investments to be invested in a common pool while providing for centralized management of assets.
Grantor Retained Income Trust
A Grantor Retained Income Trust (GRIT) can be a valuable tool in estate planning. Payment of the income may be by either a fixed annuity (GRAT) or a variable annuity (GRUT). Either form can provide a favorable means of removing rapidly appreciating property from a client’s estate while passing on substantial wealth to children and future generations. Moreover, although the grantor is treated as having made a completed gift at the time the GRIT is established, by making full use of the gift tax exclusion, the transaction may be structured so that little or no gift tax is due.
If the grantor has used most or all of his or her lifetime gift tax exclusion, it is critical that the calculated gift comes as close to zero as possible such that there is no current gift tax liability. This is referred to as the “Zeroed Out GRAT” or the “Walton GRAT.”
In the event the grantor dies during the term that the GRAT or GRUT is in existence, the fair market value of the remaining trust assets will be included in the grantor’s estate. Nonetheless, because the cost of setting up a GRAT or GRUT is minimal and the benefits may be substantial, we often recommend it to clients with substantial estates. In addition, the risk of premature death can be hedged using life insurance to cover the period of the annuity
Charitable Trusts And Foundations
Giving to charity provides one with the opportunity to extend their legacy to future generations by benefiting those causes and organizations that they value the most. With proper tax planning, this philanthropic desire can be accomplished while obtaining certain tax advantages. We often work with clients to set up Charitable Trusts designed to avoid the payment of capital gains taxes on appreciated property. These Trusts can take the form of either a Charitable Remainder Trust (CRT) or a Charitable Lead Trust (CLT). Generally, the grantor of a CRAT (Charitable Remainder Annuity Trust) establishes the Trust and retains an income interest for life, or for a term of years (not to exceed 20 years). At the end of the trust term, the unspent principal of the CRT is paid over to a charity or charities, or private foundation (such as the grantor’s family foundation) chosen by the grantor or by the trustee. In a CLT, the grantor of a CLT establishes the trust so that the income is paid to the charity rather than the grantor. After a period not to exceed 20 years, the remainder of trust assets is transferred to the grantor or his family.
The estate of a decedent is allowed an unlimited estate tax deduction for property left to a properly prepared private foundation. In addition, the private foundation may be set up as a trust or corporation that is exempt from income tax. Consequently, at the death of the surviving spouse, many clients leave property to a private family foundation. In addition to the elimination of estate tax, this allows the heirs to continue to carry on charitable work in the name of their parents. Often clients prefer to establish their family foundation during their lifetimes so that they can teach their children the value and practice of philanthropy. If established during one’s lifetime, the private foundation will provide current income tax deductions for all contributions made to the foundation each year. Setting up and maintaining a Private Foundation can be costly and is not for everyone. For those with substantial assets, however, it can be a wonderful vehicle to leave a lasting legacy.
Contact us today for experienced Maryland legal counsel in designing and implementing your advanced estate plan. And enjoy the peace of mind that comes from knowing you have a plan in place for the future.