Advanced Estate Planning with Lifetime Gifts

There are a number of estate planning strategies that can help preserve your assets, promote the transfer of wealth, and lessen the tax burden on you and your estate. Forbes’s article entitled “5 Lifetime Gift Strategies For You And Your Family To Consider” that discusses five frequently-used lifetime gifting strategies to consider as part of your estate plan if you have significant wealth to transfer to future generations.


These are advanced estate planning strategies that involve making lifetime gifts either to an irrevocable trust, family business entity, or even by making an intra-family loan.


A grantor retained annuity trust (GRAT) is an irrevocable trust strategy that can be a good choice if you want to transfer hard-to-value assets and if you are unlikely to pass away in the very short run. A GRAT lets you transfer assets to a trust and retain the right to receive a fixed annuity payment for a term of years, at the end of which the remaining trust assets are distributed to your beneficiaries without any more gift or estate taxes. What’s neat is, the income stream’s value is deducted from the value of the transferred assets when determining the gift’s full taxable value. But here is the kicker.. if the grantor dies before the end of the trust term, the whole value of the trust will be included in the taxable estate (like the trust had never been created). Therefore, you can see how important it can be to carefully choose the term of the trust, so the grantor is likely to live beyond its termination. GRATs must have a minimum term of two years.


A defective grantor trust strategy can let you transfer appreciated assets to your trust without recognizing a capital gain on the sale. Here, the grantor transfers property to a trust in exchange for a promissory note that carries a market rate of interest and a balloon payment at the end of the note’s term. If the growth of the trust assets exceed the interest rate on the note, the excess is passed on to the beneficiaries free of any gift tax. Unlike the GRAT, regardless of when a person dies, the trust assets are not part of the grantor’s estate; however, if the note has an outstanding balance, that balance is included as a part of the estate.


Family limited liability entities are complex estate planning strategies that can provide many benefits to high net worth families with personal, business and investment assets. They’re flexible, so it makes them particularly attractive, because their governing documents can be changed as family dynamics and family business structures evolve. These entities are frequently used to help families consolidate investments, share income with family members in lower tax brackets, shield assets from lawsuits and create a long-term estate plan. Speak with an estate planning attorney to see if this strategy makes sense for your situation.


A lifetime credit shelter trust can be a wise estate planning vehicle if you want to leverage the increased lifetime gift-tax exemption amount but want to retain some indirect access to those assets via your spouse. With this trust, the grantor makes a gift to the trust for the benefit of his or her spouse and other family members. Because of the spouse’s rights to the assets in the trust as a beneficiary, the grantor also maintains his or her access indirectly. You can allocate your lifetime exemption while the gifted assets, including any appreciation, stay outside your estate for estate tax purposes. You and your spouse can create lifetime credit shelter trusts, but they can’t be identical.


Another strategy is making an intra-family loan. The tax code lets you make loans to family members at lower rates than commercial lenders, without the loan being considered a gift. You can help your family members financially without incurring more gift tax. The IRS requires that a bona fide creditor relationship with a minimum interest rate be created. This can be a good way to transfer wealth, if the borrowed assets are invested and earn a stronger rate of return than the interest rate on the loan. The interest must also be paid within the family.

Speak with an estate planning attorney with experience with lifetime gifting strategies and entity planning if you want to explore the above strategies for your situation.


Reference: Forbes (August 5, 2019) “5 Lifetime Gift Strategies For You And Your Family To Consider”

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