While every family should have an estate plan, it is crucial for wealthy individuals and families. Why? Without a plan, you have more to lose than people of more modest means. Similarly, you have considerably more to gain with a plan designed and implemented by an experienced estate planning attorney.

Advanced estate planning is a comprehensive solution beyond the basics of drafting a will or establishing a simple trust. It involves a holistic approach to managing assets, minimizing tax liabilities, and ensuring your wishes are honored.

This sophisticated strategy is even more important for individuals with substantial assets, complex family situations, or unique goals. At The Law Offices of Clifford M. Cohen, Cliff specializes in drafting personalized advanced estate plans for Washington, D.C., and Maryland clients.

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.
  • Ensuring your heirs are mature enough to handle a large inheritance on their own, and if they are not, take 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 predators.
  • Managing the value of your business interests.
  • Leaving a lasting legacy and impact on society.

These areas can be accomplished through various advanced estate planning tactics.

How To Protect Your Wealth With Advanced Estate Planning Strategies

Revocable and Irrevocable Trusts

  • Revocable Living Trust: This trust allows individuals to retain control over their assets during their lifetime and specify how they should be managed and distributed to their beneficiaries upon death. It can be changed or revoked at any time while the individual is alive. 
  • Irrevocable Trusts: Once established, these trusts cannot be modified. They provide significant tax advantages and asset protection, making them ideal for high-net-worth individuals.
  • Testamentary Trust: This type of trust is created through a will and only goes into effect after the parent’s death. It helps specify conditions for asset distribution, such as at certain ages or milestones for the children.
  • Special Needs Trust: This trust is designed to provide for children with disabilities without affecting their eligibility for government benefits. 
  • Spendthrift Trust: This trust protects the assets from being squandered by the beneficiaries. It gives the trustee control over distributions, ensuring, for example, that children receive the benefits as the parents intended.

These trusts described above offer flexibility, control, and protection, helping parents ensure their children’s financial security and well-being.

Certain trusts can also help avoid or minimize estate tax exposure. For example, an Irrevocable Life Insurance Trust (ILIT) can exclude life insurance proceeds from your estate, which will be discussed in more detail below.

Charitable Giving

Charitable trusts are a key tool in sophisticated estate planning for Washington D.C. and Maryland residents seeking to fulfill philanthropic goals while achieving tax benefits. These trusts allow you the flexibility to set aside assets for charitable purposes, either during your lifetime or as part of your estate plan, while also providing potential income tax deductions and reducing estate and gift taxes.

There are two main types of charitable trusts: Charitable Remainder Trusts (CRTs) and Charitable Lead Trusts (CLTs):

  • CRTs: These trusts allow you to donate the remaining assets to a charity while receiving an income stream for a specified period.
  • CLTs: These trusts provide income to a charity for a set time, with the remaining assets eventually going to your beneficiaries.

Family Limited Partnerships (FLPs)

FLPs are practical tools for transferring wealth to family members while maintaining asset control. They offer significant tax benefits and can protect assets from creditors.

Grantor Retained Annuity Trusts (GRATs)

A GRAT is a valuable estate planning tool in Washington, D.C., and Maryland designed to minimize gift taxes while transferring wealth to beneficiaries. In a GRAT, the grantor places assets into the trust and retains the right to receive annuity payments for a specified term. After this period, any remaining assets in the trust pass to the beneficiaries without additional gift tax, provided the grantor survives the trust term. The effectiveness of a GRAT hinges on the trust assets’ growth exceeding the IRS’s assumed rate of return, known as the Section 7520 rate. This rate is published monthly to determine the present value of an annuity, life estate, or a remainder interest.  

In Maryland and D.C., GRATs are particularly useful for high-net-worth individuals who aim to transfer wealth while maintaining control over assets during their lifetime. 

Dynasty Trusts

Dynasty trusts are designed to last for multiple generations, preserving wealth within the family while minimizing estate and gift taxes. These trusts are particularly beneficial for families with substantial, long-term assets.

Estate Tax Considerations in Washington D.C. and Maryland

The estate tax is a tax on the right to leave assets at death. Individuals should be aware of the consequences of federal estate tax and specific estate tax provisions in Washington, D.C., and Maryland. Federal, D.C., and Maryland estate tax exemptions are currently different amounts.  

The federal estate tax threshold for 2024 is $13.61 million for individuals, which means that married couples do not have to pay estate tax if their estate is worth $27.22 million or less. This exemption has helped affluent families pass along substantial gifts tax-free. However, this benefit will remain in effect only through the end of 2025. After that, the amounts will return to 2017 levels in 2026. The Washington D.C. exemption for 2024 is $4,710,800 per person, and the estate tax threshold for Maryland is $5 million as of 2024 (and has been since 2019). 

Maryland is unique as it imposes an estate tax and an inheritance tax. The inheritance tax applies to assets passed to particular beneficiaries, such as distant relatives or non-relatives, at up to 10%.

Remember that the federal estate tax exemption allows for portability, which both D.C. and Maryland do not. Portability allows a married couple to be considered one financial unit. Before portability, if an individual passed away without using or fully utilizing their exemption, their exemption died with them. Currently, with the concept of portability, the unused amount of the federal exemption from the first spouse can be carried over to the surviving spouse if the surviving spouse is a U.S. citizen and U.S. resident. Another element of allowing for portability is that an estate tax return has been filed to preserve that portability.

The Law Offices of Clifford M. Cohen understands D.C. and Maryland estate planning and tax laws and can provide tailored advice and strategies to ensure your estate plan meets your goals and minimizes tax liabilities.

Advanced Techniques for Tax Efficiency

  • Generation-Skipping Transfer (GST) Tax Planning

The GST tax applies to transfers made to beneficiaries two or more generations below the donor, such as grandchildren. Utilizing GST exemptions and trusts can minimize this tax.

  • Irrevocable Life Insurance Trusts (ILITs)

An ILIT is a powerful estate planning tool for individuals in Maryland and Washington, D.C., seeking to minimize estate taxes and protect their assets. An ILIT is an irrevocable trust holding life insurance policies outside your taxable estate, ensuring that the death benefit is not subject to federal estate taxes, which can significantly reduce the overall tax burden on your estate, preserving more wealth for your beneficiaries. The proceeds can also provide liquidity to pay estate taxes and other expenses.

In Maryland and Washington, D.C., an ILIT also offers protection from creditors and ensures that the life insurance proceeds are managed and distributed according to your specific wishes. The irrevocable nature of the trust means it cannot be altered once established, making it crucial to work with an experienced estate planning attorney to structure the ILIT properly.

  • Sales to Defective Grantor Trusts (DGTs)

Sales to a DGT in Washington, D.C., and Maryland is an estate planning technique that allows grantors to transfer appreciating assets while retaining control over the trust for income tax purposes but avoiding estate taxes on the assets’ growth. A grantor sells an asset to the trust for a promissory note. The asset’s future appreciation occurs outside the grantor’s estate, reducing estate taxes. The term “defective” here refers to the fact that the trust is intentionally designed to be “defective” for income tax purposes but effective for estate tax purposes.

Special Considerations for Business Owners

For business owners, advanced estate planning helps ensure a smooth transition and continuity of the business. Key strategies include:

  • Buy-Sell Agreements: These agreements outline the terms for the transfer of business interests upon death or incapacitation, protecting the business and its stakeholders.
  • Business Succession Planning involves identifying successors, establishing training programs, and creating mechanisms for transferring ownership and control.

Why Choose The Law Offices of Clifford M. Cohen? 

The Law Offices of Clifford M. Cohen brings extensive experience and a deep understanding of the complexities of advanced estate planning. Cliff’s personalized approach ensures that your estate plan is tailored to your needs and goals, providing peace of mind for you and your family. You can depend on Cliff for compassionate, effective representation and personalized attention.

Contact Cliff Cohen —an attorney who will treat you with dignity and compassion.