Who deserves to benefit more from your clients' years of hard work - your clients and their family or the government?
When you've amassed a considerable net worth, the last thing you want to do is pay a large percentage of it to the IRS when you die. But it still happens - poor planning and execution leads to estates getting hit with estate taxes, year after year.
What happens when you fail to reduce your client's tax liabilities? Who misses out when Uncle Sam gets a larger chunk than he's entitled to?
Your children, your grandchildren, your church, your alma mater, and other worthy causes you've given to over the years.
You're legally required to pay the minimum amount of taxes you owe so why not take full advantage of this by effectively planning your estate.
Determine Client's Need to Reduce Tax Liabilities
In 2018, the federal estate tax exemption increased to $11.18 million per individual. What will it be when your client's pass?
What you do know is what your client's assets are worth right now.
Your client may already have a last will and testament prepared. That's a great start but it's not enough, especially if they own property in multiple states. The goal is to keep the estate out of the costly and time consuming nightmare called probate.
Steps to drafting a revocable living trust, converting IRA's to payable on death accounts and ensuring beneficiary information, is up to date help others protect your assets and make their transition to their heirs go smoothly.
They Can Move to a State with No Estate Tax
Missing a child who's moved away to pursue a career?
Always wanted to retire to a state with better weather?
The following states collect estate tax. Leave them or avoid them to reduce your tax liabilities significantly.
- District of Columbia
- New York
- Rhode Island
Start Giving Away Assets Now
Want to know how your clients can avoid estate tax?
Remember the saying, "It is better to give than to receive."
Start giving away assets while you're alive to lower the value of the estate. In 2018, the federal gift tax exemption is $15,000 per person. This means a husband and wife can each give $15,000 to as many people as they choose without having to disclose their gifts to the IRS.
Gifts given for tuition and medical expenses may also be exempt from gift tax, so long as they're given directly to the institution and not the individual.
Another giving strategy involves gifting high-appreciating assets in the present to avoid estate tax upon death. An example would be giving a business to your children now.
The value of the business exceeds the yearly $15,000 exemption but gift tax isn't triggered because the overage is counted against your lifetime estate tax exemption. This is a far better outcome than allowing the business to appreciate in value and paying estate taxes upon death.
Use Both Marital Exemptions
We've alluded to this a couple times already so let's explain it now in more detail and add a little twist.
The lifetime estate tax exemption / annual gift tax exemption are per individual. A husband and wife each get the exemption, although they're legally one unit. This effectively doubles their exemptions.
Sounds great until one spouse dies.
The deceased spouse may transfer all assets to the surviving spouse with no impact on the exemption. But that leaves only one exemption when the surviving spouse dies and if the assets are greater, estate tax kicks in.
There is a way to plan for this while a husband and wife are still alive. It's called a living trust and it can be structured to split the estate into two trusts of an equal amount.
When the first spouse dies, his trust uses his exemption. When the second spouses passes away, her trust uses her exemption. With the taxable estate reduced significantly, maybe to zero, the estate passes through to their heirs with minimal tax impact.
Move Assets Into Trusts
There are a plethora of trusts you can inform your clients about to protect their estate, maximize its value and control how it's distributed to heirs.
Qualified Personal Residence Trust
A QPRT removes a primary or vacation home from the estate while you continue to live there. When the trust ends, the home is transferred to the beneficiary.
This reduces the home's gift value and leaves more of the exemption for other assets.
Grantor Retained Annuity Trust / Grantor Retained Unitrust
This works much like a QPRT, only with a different asset type - like stocks or a business. The asset is removed from the estate and placed into the trust for a number of years which reduces the size of your estate.
When the trust ends, the asset transfers to the beneficiary, at a lower gift value. Fixed value assets go into a GRAT. Assets with a fluctuating value go into a GRUT.
If you die before the trust ends, the asset returns to your client's estate.
Charitable Remainder Trust
This arrangement places an asset into an irrevocable trust and sells it at market value. The asset is removed from the estate and gets an immediate charitable gift deduction. Capital gains taxes are also avoided.
Once the asset is sold, income-producing assets are purchased with the proceeds. They're paid the income until the end of life. Upon death, the asset is transferred to the charity that was chosen.
Irrevocable Life Insurance Trust
Creating an ILIT removes the value of your life insurance policy from your estate by making the trust the owner. Live a minimum of three years after forming the trust and the benefit is not included in your estate's value.
The trust is made the beneficiary of the insurance policy, allowing the proceeds to stay in the trust and be paid out periodically to your client's spouse, kids or grandkids.
Take Action Now For Your Clients
Ironic as it may sound, our tax laws provide many opportunities to reduce tax liabilities. Through the estate tax exemption, annual gift tax exemptions and numerous types of trusts - you can protect your client's hard-earned assets.
Estate planning automation can maximize the value of your services by making sure your clients pay the minimum amount of tax you legally owe.
Contact us today to find out how we can assist you.