Spring 2017 Issue of Horizons

Coordinate Your Estate Plan with Your Overall Financial Plan

∙ Put into place the basic estate planning documents and retitle assets into a revocable living trust.

∙ Set up a life insurance trust.

∙ Use strategic donations to charitable trusts or organizations to coordinate your estate plan with your income tax plan to reduce your overall tax liability.

∙ Determine which appreciable assets should be gifted and determine the most strategic deployment of one asset versus another for any given planning technique.

∙ Consider a charity as an IRA beneficiary to minimize the overall family estate and income tax exposure.

Using the $14,000 annual gift exclusion, allows taxpayers to pass money or assets every year, reducing the remaining value of their estates. The best practice is to start with assets that have the potential to highly appreciate so that you can avoid taxation on the appreciated value. One other easy option that an individual can utilize for gifting is for the payment of medical or education expenses for someone else. As long as the payments are made directly to the provider, they do not count against the annual exclusion or lifetime exclusion. They are essentially tax-free gifts. Using trusts is a backbone of smart estate planning. Trusts come in many sizes, shapes and forms. There are a variety of trusts to use to transfer assets and hold them until their final distribution. Revocable living trusts are one example of a basic way to get assets into a trust that won’t “activate” until your death. Qualified terminable interest property (QTIP) trusts allow assets to be put aside for a surviving spouse to use to live on during his or her lifetime. There may also be access to principal based on discretion of the trustee. When the surviving spouse passes away, then the money continues on to the remainder beneficiaries.

There are also trusts designed to help people with donating to charity, such as charitable remainder trusts. Another strategic planning tool is to transfer a portion of business interests to future generations with limited shares. By giving limited, or non-voting shares, many times a valuation discount can be obtained to reduce the amount taken from the lifetime exclusion. These are sometimes held in a family limited partnership. There are some legislative changes that could take place in the wake of the recent election. The possible new adjustments to estate taxation could mean only capital gains over $10 million would be taxed. This would continue to relieve the tax burden for smaller estates. However, there is still speculation as to whether assets would miss out on the step up of basis that they are currently entitled to. There is also a chance the estate tax could be repealed. As an overall best practice, have your estate in order regardless of age or income level. This includes knowing value, ownership, beneficiaries and location of your assets.

Estate Planning: Preparing for What’s Ahead

38