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A Prediction about Estate Planning in the Near Term

As trusted advisors, we see it as our job to alert you to strategies that can help build and protect your family’s wealth and the lifestyle it supports. From a macro perspective, we see an estate tax that takes essentially no wealth from the vast majority of families, historically high federal deficits, and a real possibility for an administration change that would take us in the direction of more assets being lost to estate and gift taxes.

An important and impactful estate tax minimization strategy has always been to use your exemption sooner rather than later. Even if the exemption amount stays constant, using it earlier in your life means that you not only get that fixed dollar of wealth moved to the next generation without estate and gift tax, but you also move free of such tax all future appreciation on it. With the magic of compounding, this can be extremely powerful. Of course, if some of your current available exemption evaporates through legislation, say next year, then the failure to use it has that much more profound of an effect on your family’s wealth.

Part of our prediction is based on what we mean when we say “use your exemption.” Essentially, it means to transfer wealth in a manner that will cause it to not be part of your taxable asset base when you pass away. Many clients will ask the natural question: Can I transfer it and still have access to the wealth if it turns out I need it for myself? Yes. There are a lot of strategies to do this, at least to some extent, and at least indirectly.

So our prediction is this: You could see a lot of interest in Trusts and similar strategies this Fall of 2020 to help clients “use the [currently generous] exemption” before a possible rollback beginning in the next 12 months.

*Intended as general guidance only and not as legal advice.

How To Protect Your Assets From Creditors

Protecting your assets from creditors (“asset protection”) is a topic you don’t think much about until a triggering event, and then it can jump to the top of your priorities. The triggering event may be an accident with personal injuries on your property, a contract commitment turning bad, or involvement in a financial project where substantial resources are lost.

Asset protection planning can take many forms, including changing asset titles or setting up structures, such as LLCs or Trusts, to own assets. With respect to Trusts, in the past these have probably gotten more press than their actual usage would merit. That’s because North American law basically prevented moving your assets to a trust that includes you as a beneficiary and using this to shield the assets from creditors.

Trusts serve many useful purposes, but in the U.S. asset protection for the person who establishes the trust wasn’t one of them. This changed in 1997 when Alaska became the first state to permit self-settled asset protection trusts, competing with offshore jurisdictions, such as the Cook Islands. The trend of U.S. states permitting individuals to use trusts to protect assets from their own creditors continues to pick up steam. With the recent additions of Indiana and Connecticut, the number of states with asset protection trust legislation now stands at 19.

While the rules for establishing these trusts differ by jurisdiction, they have some common themes such as:

(1) that state’s laws must govern the trust, (2) they require a Trustee and some assets in the state, (3) the trust must be irrevocable and, (4) it must contain provisions limiting creditors’ rights.

Domestic Asset Protection Trusts (DAPTs) are becoming much more common and are one technique to consider if you are interested in protecting your assets.

*Intended as general guidance only and not as legal advice.

Why You Should Have a Family Meeting

Many folks have not considered holding a family meeting in a slightly more formal setting like one of your advisor’s offices. There can be many advantages to these.

Confidence is an important outcome that we talk about here. Do your spouse and children know what to do if you are not there? Whether they articulate it in advance or not, most families express a substantial improvement in their sense of security knowing there are caring professionals with knowledge of their situation who are there and ready to help at any point.

This is also a great time to develop and perpetuate family values, principles and mission. A place where we are focused on being good stewards of business and personal wealth and taking care of family can facilitate discussions in this regard. Our team will provide examples if this is your first attempt at reducing your values and principles to writing.

While there are many more benefits to these gatherings, a word should also be said about confidentiality. A meeting with your advisors does not mean disclosing too many details too early. It is much less important to share amounts, or even specific assets, than to introduce your team and let your family know that you have thought about, and have a plan for, their long-term wellbeing.

If you have any questions about hosting a family meeting, or if you would like to set up one, please contact us.

*Intended as general guidance only and not as legal advice.

Succession Planning: Overcoming Procrastination and Creating Confidence

Succession Planning: Overcoming Procrastination and Creating Confidence

If any of these sound like you, then you may be an entrepreneur who is reluctant to plan for the future of your business:

(1) Need for control; (2) Strong work ethic; (3) Immortality complex.

We have techniques to help business owners overcome their procrastination about succession planning.

These include providing assurance on financial security and cash flow, painting realistic exit strategies, and pointing out opportunities for tax savings. Utilizing these and other success strategies can give you greater confidence about the future, for your business and your family.

*Intended as general guidance only and not as legal advice.

Doing Good

September 5th is the International Day of Charity and its purpose, at least in part, is to raise awareness for charities all over the world. Helping many folks plan, as we do, how their wealth can most benefit themselves and their families and communities, it seems an appropriate occasion to share a few thoughts on charity from our perspective.

Rather than recite all the techniques that help maximize estate, gift and income tax benefits of charitable gifts, it may be more useful to say: If you plan to make a significant gift to charity, whether it is on a one-time basis or in the aggregate over the coming years, meet with your advisors in advance and make sure you are structuring your gift in an optimal manner.

In estate planning documents such as your Will or Trust, there are some strategies you can use that you may not have thought about. For one, it is possible to give partial interests to charity and receive substantial tax benefits for doing so, even where a noncharitable person (such as your children) will receive benefits from the property before or after the charity. For example, you might leave a charity the income from your investment for a period of years and then your children receive the asset.

And if you hadn’t considered including a charity in your plan at all, maybe it’s really a matter of where they fit. In other words, possibly your plan should provide, in effect: “If all of the named individuals are deceased, then I leave X to charity.” You can feel better about your legacy even if the gift is far from guaranteed and, in a very real sense, enough folks doing this could change the world for the better.

If you’d like to talk with any of our attorneys about legal techniques to add charities to your wealth planning, please contact us.

*Intended as general guidance only and not as legal advice.

3 Takeaways: 40th Annual Estate Planning Conference

The 40th Annual Estate Planning Conference, held as usual in Kiawah Island, South Carolina, just concluded. Below are three takeaways we believe you’ll find useful in your practice.

FLP Entities

John W. Porter, an experienced tax litigator with Baker Botts LLP in Houston, Texas spoke on several topics including family limited partnership style entities. There were a number of takeaways but a good summary is still “respect the entity.” Too many families treat these as personal bank accounts rather than business entities and do not get the results they hoped for. If your clients have these LLCs or LPs and still desire the benefits that led to their creation, encourage them to have at least an annual meeting with their advisors to help ensure that they are operating the entity as a business.

Kaestner

We’ve written before about the US Supreme Court decision that ruled North Carolina’s attempt to tax trust income merely on the basis of a beneficiary residing in North Carolina unconstitutional. N.C. Dept. of Revenue v. Kimberly Rice Kaestner Family 1992 Family Trust, U.S. Sup. Ct. No. 18-457 (June 21, 2019). The important planning opportunities going forward will involve advisors looking at the three factors that states basically use to determine whether they will tax a trust’s income and then assisting their clients in making strategic decisions accordingly. The three considerations that normally are involved in state income taxation of trusts are the location/residence of: (1) Grantor; (2) Trustee/Trust Administration; and (3) Beneficiary(ies).

Grantor Trusts

A third takeaway also comes from Porter and I’ve heard this called the “greatest estate planning technique” at various CEs for about the last 10 years. The technique is grantor trusts and it is indeed very powerful. If you want to make a gift outside the tax system, you normally need to keep it under the annual exclusion limit. With a grantor trust, however, you are allowed to pay all the income taxes for the trust and not report it as a gift. Trust assets (and other assets for that matter) grow quickly without the drag of income taxes. Mixing this technique with the magic of compound interest, many of us have seen this become so impactful that even very affluent clients eventually decide to turn it off and stop transferring wealth to younger generations with it. Furthermore, as Porter reports, the IRS really can’t attack it.

*Intended as general guidance only and not as legal advice.