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Trust Ideas That Allow You to Be Proactive About Protecting Your Wealth… Before The Election


It is important to know that, with each change of political administration typically comes a change in the estate tax and the ceiling for estate tax exemptions. For example, prior to the 2016 presidential election, a significant number of people rushed to protect their assets by updating their estate planning documents because presidential hopeful Hillary Clinton was threatening to raise the estate tax and lower the ceiling for estate tax exemptions. As a result, it is typically a good idea to do some strategic estate planning before a presidential election, especially for high net-worth families so that you are avoiding making stressful, last-minute changes to your documents and planning as far in advance as possible when it comes to estate tax strategies.

Planning ahead not only includes the ability for high net worth individuals to gift a significant amount of funds to someone else free of the transfer tax (which will not sunset until 2026 unless the next administration somehow changes that) but in also selecting the right strategy so that you can take advantage of the current laws and receive a substantial reduction in estate tax liability. The strategy that you select ultimately depends on whether you are seeking to maintain access to the assets you want removed from your estate, or if you want to transfer them right away to your beneficiaries.

The Spousal Lifetime Access Trust (SLAT)

There are a number of strategies that allow you to benefit from assets that are removed from your estate. Take for example the spousal lifetime access trust (SLAT). This is established by the grantor while they are alive for the benefit of their spouse in order to provide financial assistance to that spouse while sheltering the property from both the taxable estate and future creditors. SLATs are ideal for, for example, a couple with children who own a business and who want to shelter some of the funds of that business in order to allow the family to have access to the trust funds during the business owner’s lifetime. These assets will also avoid being subject to estate taxes upon the couple’s deaths, allowing any remaining property to be available immediately to their descendants.

The Beneficiary Defective Inheritor’s Trust (BDIT)

Another example is the beneficiary defective inheritor’s trust (BDIT), which is an irrevocable trust that allows the beneficiary to enjoy the benefits of a traditional trust while also still controlling and managing the assets, all while they are not included in their taxable estate. BDITs might be ideal for, for example, business owners who may eventually want to pass their assets onto their child or someone else, but are not yet ready to. It allows the business owner to continue to withdraw funds from the trust while they are also treated as the grantor of the trust. The BDIT owns the business and the owner receives distributions from the trust, while the assets are protected from creditors and excluded from the taxable estate.

The Grantor Retained Annuity Trust (GRAT)

There are also strategies that allow you to transfer assets to future generations. We previously discussed grantor retained annuity trusts (GRATs), for example. These are very popular right now because we are in a very low interest rate environment and, when that is the case, assets placed in the trust could result in a significant amount of wealth being transferred to beneficiaries tax-free. Thus for example if a business owner sets up a GRAT for an eight-year term, lists their children as the beneficiaries, sets up the annuity to pay themselves $4 million, if their business grows to $7 million, their children will eventually receive $3 million tax-free.

Family Limited Partnerships

There are also Family Limited Partnerships (FLPs), which allow for assets to be transferred via partnership interests to the next generation while the partnership retains control and at a discount, which reduces tax liability. Families will sometimes set up FLPs as general partnerships, gifting limited partnership interests to their children, which allows them to control the cash flow while their children collect interest, dividends, and profits.

Charitable Lead Trusts (CLTs) And Charitable Remainder Trusts (CRTs)

Finally, there are strategies that allow you to benefit as the grantor, as well as your heirs, while also benefiting charitable interests, such as Charitable Lead Trusts (CLTs) and Charitable Remainder Trusts (CRTs). In a nutshell, CLTs pay out an annuity to a charity for a set term and the balance goes to a trust beneficiary at the end of that term, and with CRTs, the charity is the remaining beneficiary that receives the remaining assets at the end of the set term.

Contact Our Florida Estate Planning Attorneys to Select the Right Trust

Each of these strategies are very specific and should be carefully discussed with your estate planning attorney. If you have any questions, contact our experienced Orlando estate planning attorneys at the office of Gierach and Gierach, P.A. today to find out how we can help you select the best options possible for you and your loved ones.





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