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Advanced Estate Planning -- Saving Taxes You've worked hard your whole life to provide for your family, make your loved ones more secure, and increase your wealth. Without advanced estate planning strategies, much of the wealth you have accumulated may be devoured by federal and state estate taxes. Your will should be appropriate for your particular estate planning needs. Your estate plan may need one or more trusts tailored to give you the greatest advantage in saving taxes while implementing your intentions for your beneficiaries. Our Seattle law firm assists affluent families and individuals with such sophisticated planning strategies as Grantor Retained Annuity Trusts, Family Limited Partnerships or Limited Liability Companies, Qualified Personal Residence Trusts, Irrevocable Life Insurance Trusts and a wide range of charitable gifting techniques to reduce Federal Estate Taxes, Gift Taxes and Generation Skipping Transfer Taxes.
At a minimum, your estate plan should be reviewed to see if valuable tax savings strategies are already in place. For example, it is not uncommon for a husband and wife to leave their estate to the surviving spouse knowing the survivor will then leave his or her estate to the couple’s children. But such a common plan wastes a valuable exemption which can result in needless payment of hundreds of thousands of dollars on the death of the second spouse. The right planning may involve tax-sensitive language in your will or trust. The Van Nuys Law Office PLLC in Seattle provides advice for such wills and trusts. More sophisticated planning can be used to avoid – legally—substantial estate and gift taxes. When about half or more of your estate can be consumed by federal and state taxes at death, it is wise to consider strategies to protect your estate from unnecessary taxes. At Van Nuys Law Office PLLC in Seattle, you'll find a lawyer who has the ability to plan your will or trust to help you save taxes.
Family
Limited Partnerships. A Family Limited Partnership (FLP) is a form of a limited partnership among members
of a family. The main advantages of forming and funding an FLP involve estate and gift tax savings and asset protection. An
FLP also allows you to retain control over the transferred assets while enjoying these advantages.
Once the FLP is established and your assets are transferred to it, you can make gifts of limited partnership interests to your children or other beneficiaries. This accomplishes several different estate planning objectives simultaneously. First, the value of each limited partnership interest which you give away decreases the value of your taxable estate and, consequently, any tax which becomes due upon your death. Properly structured the gifts can qualify for the annual gift tax exclusion, so you do not have to pay any gift tax on the transfer.
Second, the value of the partnership interests transferred to your beneficiaries can be discounted substantially, further reducing exposure to taxes. Since limited partners do not have the ability to direct or control the day-to-day operation of the partnership, a minority discount can be applied to reduce the value of the limited partnership interests which you are gifting. Furthermore, because the partnership is a closely-held entity and not publicly-traded, a discount can be applied based upon the lack of marketability of the limited partnership interest. This allows you to leverage the FLP as a vehicle to transfer more wealth to your beneficiaries, while retaining control of the underlying assets. Third, a properly-structured FLP can have creditor protection characteristics since the general partners are not obligated to distribute earnings of the partnership. Lastly, making gifts of partial interests in the FLP is an effective way to plan for the ultimate transition of your assets to your loved-ones. Transition planning for family businesses is too often overlooked. If plans are not developed and implemented until after your death, the transition can wreck havoc for family. Qualified Personal Residence Trusts Our homes are often our most valuable assets and hence one of the largest components of our taxable estate. There is a strategy allowed in the tax code that may decrease estate taxes by putting your home in a special trust. A Qualified Personal Residence Trust or a QPRT (pronounced “cue-pert”) allows you to give away your house or vacation home at a great discount, freeze its value for estate tax purposes, and still continue to live in it. ![]() Here is how it works: You transfer the title to your house to the QPRT (usually for the benefit of your family members), reserving the right to live in the house for a specified number of years. If you live to the end of the specified period, the house (as well as any appreciation in its value since the transfer) passes to your children or other beneficiaries free of any additional estate or gift taxes. After the end of the specified period, you may continue to live in the home but you must pay rent to your family or designated beneficiary in order to avoid inclusion of the residence in your estate. This is may be an added benefit as it serves to reduce the value of your taxable estate even further, though the rent income does have income tax consequences for your family. If you die before the end of the trust period, the full value of the house will be included in your estate for estate tax purposes, though in most cases you are no worse off than you would have been had you not established a QPRT. An added benefit of the QPRT is that it also serves as an excellent asset/creditor protection vehicle since you no longer technically own the property once the trust is established and your residence is transferred to the QPRT. The Van Nuys Law Office PLLC can be your Wills and Trust attorney and help you plan your legacy. Irrevocable Life Insurance Trusts There is a common misconception that life insurance proceeds are not subject to Federal Estate Taxes. While the proceeds the beneficiaries receive are free of any income taxes, they are countable as part of your taxable estate and therefore your loved ones can lose about half of its value to estate taxes. About half of the insurance proceeds can end up wasted – eaten up by estate taxes – if the insurance is not handled appropriately. A huge problem for many estates is the lack of substantial amounts of cash right after someone passes away. Life insurance proceeds can fill this gap, but the trick is to avoid having the proceeds count for estate tax purposes. One answer is to use an Irrevocable Life Insurance Trust. This is called an “ILIT” and is pronounced “eye-lit.”
An Irrevocable Life Insurance Trust is created specifically to own your life insurance policy. A properly established and administered trust holds the insurance policy outside of your estate and keeps the proceeds from being taxable to your estate. The proceeds from the insurance policy can be used to provide your estate with cash to pay estate taxes, pay off debts, pay final expenses and provide income to a surviving spouse or children. The ILIT will be the policy owner. Since it is a trust you create, you name the beneficiaries. Once your trust is established, you use your annual gift tax exclusion to make cash gifts to your trust. These gifts are used to pay the premiums on your life insurance policy. Your beneficiaries have the right to accept the present gift, but they know that if they waive your gift to the trust each year then the premiums on the insurance policy will be paid – and they’ll end up with a much larger benefit after your death. There are many options available when setting up an ILIT. For example, ILITs can be structured to provide income to a surviving spouse with the remainder going to your children from a previous marriage. You can also provide for distribution of a limited amount of the insurance proceeds over a period of time to a financially irresponsible child.
If you need a Seattle area lawyer for your will or trust, we can help. Our Seattle firm focuses on estate planning – wills and trusts. Our firm is dedicated to helping clients make educated, informed decisions about their assets and will work with you and your team of financial advisors and CPAs to implement a highly sophisticated estate plan. Van Nuys Law Office PLLC is conveniently located in Ballard to serve the greater Seattle area. Please contact us to schedule a private consultation to discuss your estate planning needs. Let us be your Seattle Wills and Trusts attorney. |
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