Estate Planning Options for High-Wealth Individuals

AdvancedEP1346While the federal estate tax exclusion is currently larger than it has ever been at $5.43 million for individuals and $10.86 million for couples because of the portability of unused exclusion amounts, some families still face the challenge of reducing their estate to minimize or eliminate estate taxes. Because the top estate tax rate on amounts above the exemption is 40 percent, you can see why those with large estates are concerned.

The Marietta Daily Journal’s recent article, titled“Estate reduction ensuring wealth transfer to heirs,”says first and foremost, families in this situation should work closely with an experienced estate planning attorney for high-net worth individuals. “While a financial adviser is helpful in planning asset transfers to heirs, an expert in estate tax law is key for ensuring documents are structured properly.” Estate and gift tax laws are subject to change.

An easy move for wealthy families is gifting. Individuals can gift up to $14,000 per year, per individual without incurring a gift tax. The amount doubles for spouses. There’s an informational gift tax return to be filed, but there’s no tax due if the gift is under the annual exclusion limit.

Another option is paying for medical care, insurance premiums, and education costs. These do not count against the $14,000 limit, but must be paid directly to the institution or service provider.

You can also “power-fund” a 529 College Savings Plan. The Plans allow you to contribute a lump sum (up to $70,000 per beneficiary) and then elect to treat the contribution as if it were made over five years for gift tax purposes. Those assets immediately leave your estate.

Older heirs might do well with a Grantor Retained Annuity Trust. You’ll need to work with an estate planning attorney to set this up.  

A GRAT allows you to transfer rapidly appreciating or income-producing property to heirs while retaining an interest in the property over a set term, from two to 20 years. As the grantor, you are making an irrevocable, taxable gift to the beneficiaries, and the gift’s value is discounted by your retained interest.

Taxes owed on the gift to a GRAT can be partially or fully offset by the grantor’s applicable lifetime gift tax exclusion amount.

The trust pays the grantor a taxable income from the assets, based on an interest rate set by the IRS. The assets in the trust hopefully will grow at a higher rate than the annuity stream, and the excess growth will pass to the remainder beneficiaries without any gift taxes.

An estate planning attorney can create strategies that will work best for your circumstances and should be able to accommodate any changes in law.

For more information about estate planning, please visit my estate planning website.

Reference: The Marietta Daily Journal (June 5, 2015) “Estate reduction ensuring wealth transfer to heirs”

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