Federal, Estate, and Gift Tax Planning
To minimize estate and gift taxes and protect assets over multiple generations, the utilization of sophisticated estate and gift tax planning techniques is crucial. Specialized assets, such as family businesses, retirement plans, and life insurance, offer unique and very technical planning options. However, with some preparation, you can achieve substantial estate tax savings in the current 40% federal estate tax bracket, along with the possible application of state inheritance or transfer taxes.
Hiring a tax attorney will allow you to explore your possibilities with professional guidance and make selections with confidence. To limit your taxation as much as possible, consider the following sophisticated estate and gift tax planning techniques:
- Family Limited Partnerships: A family limited partnership (FLP) is a type of partnership in which a family’s assets are pooled together into one business partnership, and members of the family own shares of the partnership. This technique is often used in estate planning to minimize taxes, as shares of the partnership can be transferred between members at a relatively low tax rate.
- Revocable Living Trusts: In a revocable living trust, the creator of the legal document (the grantor) specifies who will receive their property after their death. They must also designate a trustee, who will manage and distribute the trust’s assets after the death of the grantor, maximize use of Unified Credit, and defer taxation for assets held for the benefit of a surviving spouse. Revocable living trusts can (and typically should) be updated throughout the grantor’s lifetime to account for changes in circumstances. Most people who choose to use revocable living trusts do so to avoid probate, a time-consuming, stressful, and expensive legal process.
- Dynasty Trusts and the Generation-Skipping Transfer Tax: A Dynasty Trust benefits multiple generations by avoiding or minimizing applicable estate taxes. The family’s assets are held in the trust and each generation receives a well-defined distribution, so that the entire trust isn’t subject to estate taxes. Apply your exemption from generation-skipping transfer tax to your Dynasty Trust to avoid transfer taxes and to protect the trust from creditors and claimants.
- Intentionally Defective Grantor Trusts: An intentionally defective grantor trust can be used to freeze the value of certain assets for estate planning purposes, not income tax. Its purposeful flaw ensures that the asset can be transferred out of the estate free of tax.
- Charitable Gift Planning: When giving to a charity, the goal is always to give as much money to the good cause as possible, minimizing or eliminating applicable taxes. To do this, you may need to create a charitable lead trust or take advantage of charitable deductions.
Careful estate and gift tax planning is essential if you want to minimize the toll that taxes take on your assets. To ensure that your beneficiaries receive as much of your estate as possible, work with the experienced tax attorneys of Carnahan Evans. We can help you explore various estate and gift planning techniques, ensuring that you find a solution that fits your personal situation. To get started, please give us a call at 417-447-4400 or contact us online.