You’ve worked hard your whole life to provide for your family and make your loved ones more secure. Without advanced estate planning strategies, much of the significant assets you have accumulated may end up with the IRS and state taxing authorities.
Our firm regularly assists affluent families with such sophisticated planning strategies as Credit Shelter Trusts, Irrevocable Life Insurance Trusts and a wide range of charitable gifting techniques to reduce Federal Estate Taxes, Gift Taxes and Generation Skipping Transfer Taxes.
Credit Shelter Trusts
Although federal portability allows a married couple to pass along assets of nearly $11 million without the use of trusts, credit shelter trusts continue to help couples minimize state estate taxes when the state threshold (such as Vermont) is less than the federal and does not offer portability. Vermont currently imposes a 16% estate tax liability on estates valued above $2,750,000. When one spouse dies leaving assets to the surviving spouse, there is no estate tax imposed. There is also no state exemption preserved or passed along to the survivor – which is in contrast to federal portability. Instead, if couples use credit shelter trusts, they can preserve the state exemption of the first spouse to die, thereby allowing the couple to pass along $5,500,000 to their beneficiaries. Using current 2017 figures, this can result in tax savings of up to $440,000.
Irrevocable Life Insurance Trusts
There is a common misconception that life insurance proceeds are not subject to estate Taxes. While the proceeds are received by your loved ones free of any income taxes, they are countable as part of your taxable estate and therefore your loved ones can lose a significant portion of its value to estate taxes.
An Irrevocable Life Insurance Trust is created specifically for the purpose of owning your life insurance policy. A properly established and administered trust holds the policy outside of your estate and keeps the proceeds from being taxable to your estate. The proceeds from the insurance policy can then be used to provide your estate with the liquidity to pay estate taxes, pay off debts, pay final expenses and provide income to a surviving spouse or children.
The ILIT will be the policy owner and beneficiary. Once your trust is established, you use your annual gift tax exclusion to make cash gifts to your trust. Your beneficiaries forgo the present gift (in lieu of the future proceeds) and the trustee uses the remaining gift to pay the premium on the life insurance policy.
There are many options available when setting up an ILIT. For example, ILITs can be structured to provide income to a surviving spouse with the remainder going to your children from a previous marriage. You can also provide for distribution of a limited amount of the insurance proceeds over a period of time to a financially irresponsible child.
Our firm is dedicated to helping clients make educated, informed decisions about their assets and will work with you and your team of financial advisors and CPAs to implement a highly sophisticated estate plan.