By Monique Nevarez, Esq.
When people think of estate planning, what comes to mind for most people is planning for after death. However, while traditional estate planning covers the basics (ensuring a smooth transfer of wealth and minimizing tax liabilities and probate fees), advanced estate planning encompasses various strategies and techniques designed to protect and distribute your assets according to your wishes and to address complex financial situations and specific goals.
In other words, advanced estate planning goes beyond the basics of creating a will and assigning beneficiaries. It involves a comprehensive analysis of your assets, financial goals, and potential tax implications to develop personalized strategies. The primary objectives of advanced estate planning include preserving wealth, minimizing estate taxes, avoiding probate, maintaining privacy, providing for loved ones, and sometimes even supporting charitable causes.
The following are some examples of common methods used in advanced estate planning:
Revocable Living Trust
Trusts play a fundamental role in advanced estate planning. Revocable living trusts are a popular tool that allows you to transfer assets to a trust during your lifetime, maintain control over them, and specify how they should be managed and distributed after your death. It can help avoid probate, maintain privacy, and provide for seamless asset management and distribution.
Unlike a revocable trust, an irrevocable trust restricts modification or revocation after its establishment. People commonly utilize it for estate tax planning purposes and to offer asset protection by removing assets from their estate.
Family Limited Partnership (FLP) or Family Limited Liability Company (LLC)
These entities allow you to transfer assets, such as a family business or investment portfolio, to a partnership or LLC to ensure a smooth transition of ownership and management. By gifting or selling ownership interests to family members, you can transfer wealth while maintaining control and potentially reducing estate tax.
Intentionally Defective Grantor Trust (IDGT)
An IDGT is an irrevocable trust that allows you to transfer assets to the trust while still retaining some control and benefiting from certain tax advantages. Despite its name, the “defective” aspect of an IDGT refers to the trust being intentionally designed to be treated as a “grantor trust” for income tax purposes. This means the grantor (the person creating the trust) is responsible for paying the income taxes generated by the trust assets. However, the assets themselves are considered separate from the grantor’s estate for estate tax purposes.
Qualified Personal Residence Trust (QPRT)
With a QPRT, you transfer your primary residence or vacation home to an irrevocable trust while retaining the right to live there for a set period. This can help reduce the value of your estate for tax purposes while allowing you to continue living in the property. However, the passing of Proposition 19 has made this tool less popular as it drastically limits the parent-to-child exemption.
Life Insurance Planning
Life insurance can be integrated into advanced estate planning to provide liquidity for estate taxes, equalize inheritances, or create wealth for beneficiaries. People commonly use Irrevocable Life Insurance Trusts (ILITs) to hold and manage life insurance policies outside of their taxable estate.
Note that it is important to tailor estate planning strategies to your specific circumstances and goals. Advanced estate planning involves a comprehensive approach to protect and distribute assets according to those specific circumstances and goals while minimizing tax implications. Consulting with an experienced estate planning professional is crucial. Your attorney will tailor a plan that aligns with your unique financial situation and objectives. It will ensure compliance with tax laws to achieve your desired estate planning goal. Contact us today to learn more about advanced estate planning.