ADVANCED ESTATE PLANNING
IRREVOCABLE TRUSTS AND SOME
ADVANCED ESTATE PLANNING TOOLS
Grantor Retained Income Trust ("GRIT”), grantor creates an irrevocable trust for the benefit of beneficiaries and retains the income interest for a specified term then the income passes to the remainder beneficiary. Gift will be valued based upon actuarial tables and the term of the grantor retained interest. The beneficiary receives the income from the trust without being subject to the estate tax. The assets then pass pursuant to the terms of the GRIT.
Qualified Personal Residence Trusts ("QPRT”), allows for the gift of your residence to a QPRT, with the grantor retaining an interest for a specified term of years. This gift allows for the appreciation of the residence to grow in the QPRT, outside the grantor’s estate. At the end of the term of years ownership of the residence passes to beneficiaries of the QPRT, and if the grantor(s) wish to remain in the residence, they will be required to rent the residence from the new owners at fair market rent. Even with the burden of paying rent, in a rapidly appreciating housing market, a QPRT may still be an excellent vehicle to get the residence out of the grantor’s taxable estate.
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Irrevocable Life Insurance Trusts ("ILIT”) can be used to provide liquidity for the payment of estate taxes, debts and expenses of administration, or provide a beneficial distribution to trust beneficiaries. The ILIT owns an insurance policy on the life of the grantor, or possibly both spouses. On the death of the grantor, or second spouse, the face value of the policy (less any loans) is paid into the ILIT, and is managed or distributed from there. The grantor(s) have no control over the assets in the ILIT, and only make annual gifts to the ILIT, sufficient to cover the annual premiums for the policy. The payoff of the policy is not part of the grantor’s estate.
Creation of Limited Liability Company ("LLC”) or other formal entities to hold title to real property or for the management and operation of a business. Specific facts and circumstances must be considered before creating any entity to hold property.The LLC is a business entity that limits the liability of its owners while allowing flexibility in operation and management and passing through its income to its members with no tax at the entity level.
Special Needs Trust ("SNT”) can be established for a beneficiary who is unable to receive a beneficial distribution because they are receiving Supplemental Security Income or Medicare or Medi-Cal, and receiving any beneficial distribution could jeopardize continued receipt of those benefits. Careful planning is critical to protect the special needs recipient.
Education Trusts and 529 Planscan both be utilized to fund the cost of qualified college education. While the education trust can be established to fund the education needs of children and grandchildren, it requires formal management, compliance, and control. A 529 Plan will allow similar education funding, by making gifts to a qualified state run program, with all of the control and management done by the Plan Administrator.
We will be happy to discuss what vehicles might work
best for you and your family.