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Advanced Estate Planning
An Overview of Some Sophisticated Estate Planning Strategies
Who Needs Advanced Estate Planning?
 You have net worth over
$5,490,000 (federal gift and
estate tax basic exclusion
amount in 2017)
 You want to provide for
grandchildren or later
generations
 You own a family business/
farm
 You want to donate to
charity
 You want to shield assets
from future creditors, an ex-
spouse, or your heirs’
creditors/ex-spouses
A Balancing Act
 Implementation costs
 Relinquishment of
financial benefits
 Loss of control
Advanced estate planning
strategies generally come
with tradeoffs:
The Federal Transfer Tax System
During
Life
At
Death
You Donees
Transfers may be subject
to gift taxes*
BeneficiariesYour estate
Transfers may be subject
to estate taxes*
 Gift tax — lifetime gifts
 Estate tax — property
transferred at death
 Generation-skipping
transfer (GST) tax —
transfers to individuals
more than one
generation below you
*GST tax may also apply.
 Gift and estate taxes are
unified
 Gifts made during life are
added to transfers made at
death on estate tax return
 Generally, gifts are valued as
of date gifts were made;
transfers made at death are
valued at date of death
 Any estate tax owed is
reduced by gift tax paid
 Generation-skipping transfer
tax is separate
The Federal Transfer Tax System —
The Unified System
Taxable Gifts
(Date of gift value)
Taxable Estate
(Date of death value)
Equals
Plus
Cumulative Taxable
Transfers
The Federal Transfer Tax System —
Top Tax Rates
2015 2016 2017
Gift Tax
and
Estate Tax
40% 40% 40%
GST Tax 40% 40% 40%
2015 2016 2017
Gift Tax
and
Estate Tax
$5,430,000 $5,450,000 $5,490,000
Using your exclusion for gift tax purposes reduces
your available estate tax exclusion.
The Federal Transfer Tax System —
Basic Exclusion Amounts
The Federal Transfer Tax System —
Estate Tax Exclusion Portability
 Prior to 2011, estate tax
exclusion was “use it or lose it”
 In 2011 and later, exclusion is
portable between spouses
 Surviving spouse can use any
exclusion left unused by
decedent spouse
 May effectively double
exclusion of surviving spouse
 May make minimizing gift and
estate taxes easier for spouses
$5,490,000 exclusion
of surviving spouse
$5,490,000 exclusion
of first spouse to die
$10,980,000
to beneficiaries
tax free
Plus
Equals
The Federal Transfer Tax System —
GST Tax Exemption Amounts
2015 2016 2017
GST Tax $5,430,000 $5,439,000 $5,490,000
GST tax exemption is not portable.
The Federal Transfer Tax System —
Exclusions
 $14,000 gift each year to as
many individuals as you want
($28,000 if you and your
spouse make the gift together)
 $70,000 ($140,000 with
spouse) to a 529 plan--gift
reported over five years
 Payments made directly to an
educational institution for
another individual’s tuition
 Amounts paid directly to a
medical care provider for
another individual’s medical
care
$14,000 per individual
$70,000 to a 529 plan
Education
Medical care
The Federal Transfer Tax System —
Marital and Charitable Deductions
 Transfers to U.S. citizen
spouses during your
lifetime or at death fully
deductible
 Transfers to non-U.S.
citizen spouses may
qualify for $149,000
annual exclusion (2017)
 Transfers to qualifying
charities also fully
deductible (may be
deductible for income
tax purposes as well)
Minimizing Estate Taxes
 Equalizing each
spouse’s estate
 Optimizing the marital
deduction
 QTIP trust
 Bypass (credit shelter)
trust
 Dynasty trust
 GRAT
 QPRT
Minimizing Estate Taxes —
Equalizing Each Spouse’s Estate
 Assume spouses have
unequal estates
 Spouse with larger
taxable estate can
transfer assets to
spouse with smaller
taxable estate
 Transfer not subject to
transfer tax because of
marital deduction
John
$10 million
Mary
- $5 million gift + $5 million gift
$5 million $ 5 million
- $5 million - $5 million
basic exclusion
amount
basic exclusion
amount
No estate tax No estate tax
Minimizing Estate Taxes —
Optimizing Marital Deduction
Maximum amount
passing tax free
under exclusion
Residual estate
to spouse
John’s estate
Mary
John and
Mary’s children
 First spouse to die
leaves amount equal to
estate tax exclusion to
children (no tax —
estate tax exclusion)
 Balance of estate left to
spouse (no tax —
marital deduction)
 Defers estate tax until
surviving spouse’s
death
Minimizing Estate Taxes —
Bypass (Credit Shelter) Trust
 Allows both spouses to fully utilize
estate tax exclusions while giving
surviving spouse restricted access
to more assets
 Assets passing to bypass (credit
shelter) trust utilize first spouse’s
exclusion
 Trust generally provides spouse
with restricted access to assets
 Upon death of surviving spouse,
remaining trust assets pass to
beneficiaries according to terms of
trust
John’s estate
Children
Maximum amount passing
tax free under exclusion
Trust
Residual
estate
Mary
Restricted access to trust
Receive funds according
to terms of trust
Minimizing Estate Taxes--
QTIP Trust
 Qualified terminable interest
property (QTIP) trust
 Assets passing to QTIP trust
qualify for marital deduction
 Surviving spouse receives all
income from trust for life, with
access to principal according to
trust terms
 Remaining trust assets included in
surviving spouse’s taxable estate
when surviving spouse dies
 At surviving spouse’s death,
remaining assets pass to trust
beneficiaries
John’s estate
Children
Maximum amount
passing tax free
under exclusion
Trust
Residual estate
Mary
All income
for life
Estate
$10 million
Child
$10 million
Grandchild
$39 million
Great-Grandchild
$140 million
Dynasty Trust
$10 million
Dynasty Trust
$58 million
Dynasty Trust
$337 million
 Dynasty trust preserves wealth
for multiple generations of
descendants
 Trust survives 21 years after the
death of the last beneficiary
alive when the trust was created
 Could last for over 100 years
 Trust assets remain sheltered
from transfer taxes (but not
income taxes) while in the trust
Minimizing Estate Taxes —
Dynasty Trust
26 Years
26 Years Assumes that a generation is 26 years,
the estate tax exclusion and GST
exemption are $5,490,000, the estate
and GST tax rates are 40%, the growth
rate is 7%, principal is not spent, and
state variables and income taxes are
ignored.
Minimizing Estate Taxes — GRAT
 Using grantor retained
annuity trust (GRAT)
removes property from
estate while allowing you to
retain interest
 GRAT receives property
 Annuity paid to you for
specified period of years,
then property passes to
beneficiaries
 Transfer subject to gift tax (at
discounted value)
 Property not included in
taxable estate as long as
you outlive term of years
Trust pays you an annuity for term of years
Trust
Beneficiaries
You
(and spouse)
Transfers
assets
at end
of term
Transfer
appreciating
property
Minimizing Estate Taxes — QPRT
 A qualified personal
residence trust (QPRT) is a
trust that is funded with a
personal residence
 You retain the right to
continue living in the home
for a specified number of
years
 As long as you outlive the
specified term of years, the
home is not included in your
taxable estate — but you
must pay market rent if you
continue to live in the home
What Is an Estate Freeze?
 Freezes value of property for
person removing it from his
or her estate
 Transfers future growth to
person receiving property
 Allows retention of some
control or financial benefit
 Common estate freeze
strategies include family
limited partnerships, private
annuities, installment sales,
and gift- or sale-leasebacks
Estate Freeze — Family Limited
Partnership (FLP)
 An FLP is a business entity that
enables transfer of family
business ownership to next
generation
 Typically, older generation
becomes general partners and
younger generation becomes
limited partners
 Protects limited partners from
future creditors of business
 Interests gifted to limited
partners valued at discounts as
high as 60%
 High risk of IRS challenge
You become general partner,
retain as little as 1% interest
Family members
You
(and spouse)
FLP
You transfer assets to
FLP, gift up to 99% of
interest to family
member limited
partners
Estate Freeze — Private Annuity
 Property sold in exchange
for unsecured promise to
pay specified income to you
(or to you and your spouse)
for life
 Transaction not subject to
gift tax
 Property removed from
estate entirely
Seller(s)
You (and spouse)
Buyers (children)
Income
for lifeProperty
Charitable Giving
 Can be rewarding on a
personal level
 Fully deductible for gift and
estate tax purposes
 May also be deductible for
income tax purposes
 Planned giving options
include simple bequests,
outright gifts, charitable
trusts, charitable annuities,
community and private
foundations, and donor-
advised funds
 A CRT is an irrevocable trust
that provides payments to
you (or you and your
spouse) for life
 Charity receives property at
your death(s)
 You can change charitable
beneficiary at any time
 You may be able to serve as
trustee and control assets
Charitable Giving — Charitable
Remainder Trust (CRT)
Payments for life
You (and spouse)
Trust
Charity
Charity receives
property at your
death
 With a CLT, charity receives
payments during your life, or the
lives of you and your spouse, or
for a term of years
 You or your beneficiaries
receive trust principal when trust
period ends
 Value of transfer reduced by
value of payment stream to
charity
 Channels future appreciation to
beneficiaries estate tax free
Charitable Giving — Charitable Lead
Trust (CLT)
You (and
spouse)
Trust
CharityBeneficiaries
Payments
After
trust
period
ends
Charitable Giving — Donor-Advised
Fund (DAF)
You (and spouse)
Property
Advice
DAF
Grants
Charity 1 Charity 2 Charity 3
 Donor-advised fund (DAF) is an
alternative to a private
foundation, but easier to create
and manage, and requires less
money
 DAF invests your donations and
makes grants to charities
 You can offer advice, but DAF is
not required to follow your
suggestions
 Grants can be made in your
name or anonymously
 Immediate income tax
deduction
Asset Protection
 Your wealth may be
vulnerable to future creditors
 State and federal law may
provide a degree of
protection
 Adequate insurance
protection sufficient for most
 Advanced strategies include
forming business entity to
hold business assets and
transferring personal assets
to a protective trust
Asset Protection — Business Entity
 Separate legal
entity owns
business assets
 Business entity
responsible for all
business debts
 Personal assets
not at risk for
acts of business
 Several
considerations,
including income
tax
consequences,
need to be
evaluated in
choice of
business entity
Business owner
Business owner creates
business entity and
transfers business
property to the entity.
Business entity owns the
business property.
Business entity
Creditors can only reach
business assets.
Creditors of the
business entity
Creditors cannot
reach business
owner’s personal
assets.
Personal assets
Business assets
Trustee
Asset Protection — Self-Settled
Domestic Trust
 You can name yourself as primary
or even sole beneficiary of self-
settled domestic trust
 Trustee has discretion todistribute
or not distribute trust property
 Creditors can only reach property
you have legal right to receive
 Creditors are unable to reach
property while in the trust
 Creditors can reach property once
it is distributed to you
You
Domestic trust
Your creditors
Asset Protection — Offshore/Foreign
Trust
 U.S. courts have no
jurisdiction over foreign
trusts
 Creditors must commence
suits in courts of foreign
jurisdiction
 Creditors must engage
attorney in foreign
jurisdiction, and may have to
pay fees and bond up front
 Obstacles may deter
creditors from pursuing
action
You
Offshore/foreign
trust
Offshore trustee
Your creditors
Foreign court
Conclusion
 Is estate tax a planning
concern for you?
 Do you plan to give or
leave property to your
grandchildren?
 Do you plan to give or
leave significant property
to charity?
 Do you own an interest in
a business or farm?
 Is asset protection a
concern for you?
I would welcome the opportunity
to meet individually with each of
you to address any specific
concerns or questions that you
may have.
Disclaimer
IMPORTANT DISCLOSURES
D’Arcy Wealth Management, Inc. does not provide investment, tax, or legal advice. The information presented
here is not specific to any individual's personal circumstances.
To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used,
by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek
independent advice from a tax professional based on his or her individual circumstances.
These materials are provided for general information and educational purposes based upon publicly available
information from sources believed to be reliable—we cannot assure the accuracy or completeness of these
materials. The information in these materials may change at any time and without notice.

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Advanced Estate Planning

  • 1. Advanced Estate Planning An Overview of Some Sophisticated Estate Planning Strategies
  • 2. Who Needs Advanced Estate Planning?  You have net worth over $5,490,000 (federal gift and estate tax basic exclusion amount in 2017)  You want to provide for grandchildren or later generations  You own a family business/ farm  You want to donate to charity  You want to shield assets from future creditors, an ex- spouse, or your heirs’ creditors/ex-spouses
  • 3. A Balancing Act  Implementation costs  Relinquishment of financial benefits  Loss of control Advanced estate planning strategies generally come with tradeoffs:
  • 4. The Federal Transfer Tax System During Life At Death You Donees Transfers may be subject to gift taxes* BeneficiariesYour estate Transfers may be subject to estate taxes*  Gift tax — lifetime gifts  Estate tax — property transferred at death  Generation-skipping transfer (GST) tax — transfers to individuals more than one generation below you *GST tax may also apply.
  • 5.  Gift and estate taxes are unified  Gifts made during life are added to transfers made at death on estate tax return  Generally, gifts are valued as of date gifts were made; transfers made at death are valued at date of death  Any estate tax owed is reduced by gift tax paid  Generation-skipping transfer tax is separate The Federal Transfer Tax System — The Unified System Taxable Gifts (Date of gift value) Taxable Estate (Date of death value) Equals Plus Cumulative Taxable Transfers
  • 6. The Federal Transfer Tax System — Top Tax Rates 2015 2016 2017 Gift Tax and Estate Tax 40% 40% 40% GST Tax 40% 40% 40%
  • 7. 2015 2016 2017 Gift Tax and Estate Tax $5,430,000 $5,450,000 $5,490,000 Using your exclusion for gift tax purposes reduces your available estate tax exclusion. The Federal Transfer Tax System — Basic Exclusion Amounts
  • 8. The Federal Transfer Tax System — Estate Tax Exclusion Portability  Prior to 2011, estate tax exclusion was “use it or lose it”  In 2011 and later, exclusion is portable between spouses  Surviving spouse can use any exclusion left unused by decedent spouse  May effectively double exclusion of surviving spouse  May make minimizing gift and estate taxes easier for spouses $5,490,000 exclusion of surviving spouse $5,490,000 exclusion of first spouse to die $10,980,000 to beneficiaries tax free Plus Equals
  • 9. The Federal Transfer Tax System — GST Tax Exemption Amounts 2015 2016 2017 GST Tax $5,430,000 $5,439,000 $5,490,000 GST tax exemption is not portable.
  • 10. The Federal Transfer Tax System — Exclusions  $14,000 gift each year to as many individuals as you want ($28,000 if you and your spouse make the gift together)  $70,000 ($140,000 with spouse) to a 529 plan--gift reported over five years  Payments made directly to an educational institution for another individual’s tuition  Amounts paid directly to a medical care provider for another individual’s medical care $14,000 per individual $70,000 to a 529 plan Education Medical care
  • 11. The Federal Transfer Tax System — Marital and Charitable Deductions  Transfers to U.S. citizen spouses during your lifetime or at death fully deductible  Transfers to non-U.S. citizen spouses may qualify for $149,000 annual exclusion (2017)  Transfers to qualifying charities also fully deductible (may be deductible for income tax purposes as well)
  • 12. Minimizing Estate Taxes  Equalizing each spouse’s estate  Optimizing the marital deduction  QTIP trust  Bypass (credit shelter) trust  Dynasty trust  GRAT  QPRT
  • 13. Minimizing Estate Taxes — Equalizing Each Spouse’s Estate  Assume spouses have unequal estates  Spouse with larger taxable estate can transfer assets to spouse with smaller taxable estate  Transfer not subject to transfer tax because of marital deduction John $10 million Mary - $5 million gift + $5 million gift $5 million $ 5 million - $5 million - $5 million basic exclusion amount basic exclusion amount No estate tax No estate tax
  • 14. Minimizing Estate Taxes — Optimizing Marital Deduction Maximum amount passing tax free under exclusion Residual estate to spouse John’s estate Mary John and Mary’s children  First spouse to die leaves amount equal to estate tax exclusion to children (no tax — estate tax exclusion)  Balance of estate left to spouse (no tax — marital deduction)  Defers estate tax until surviving spouse’s death
  • 15. Minimizing Estate Taxes — Bypass (Credit Shelter) Trust  Allows both spouses to fully utilize estate tax exclusions while giving surviving spouse restricted access to more assets  Assets passing to bypass (credit shelter) trust utilize first spouse’s exclusion  Trust generally provides spouse with restricted access to assets  Upon death of surviving spouse, remaining trust assets pass to beneficiaries according to terms of trust John’s estate Children Maximum amount passing tax free under exclusion Trust Residual estate Mary Restricted access to trust Receive funds according to terms of trust
  • 16. Minimizing Estate Taxes-- QTIP Trust  Qualified terminable interest property (QTIP) trust  Assets passing to QTIP trust qualify for marital deduction  Surviving spouse receives all income from trust for life, with access to principal according to trust terms  Remaining trust assets included in surviving spouse’s taxable estate when surviving spouse dies  At surviving spouse’s death, remaining assets pass to trust beneficiaries John’s estate Children Maximum amount passing tax free under exclusion Trust Residual estate Mary All income for life
  • 17. Estate $10 million Child $10 million Grandchild $39 million Great-Grandchild $140 million Dynasty Trust $10 million Dynasty Trust $58 million Dynasty Trust $337 million  Dynasty trust preserves wealth for multiple generations of descendants  Trust survives 21 years after the death of the last beneficiary alive when the trust was created  Could last for over 100 years  Trust assets remain sheltered from transfer taxes (but not income taxes) while in the trust Minimizing Estate Taxes — Dynasty Trust 26 Years 26 Years Assumes that a generation is 26 years, the estate tax exclusion and GST exemption are $5,490,000, the estate and GST tax rates are 40%, the growth rate is 7%, principal is not spent, and state variables and income taxes are ignored.
  • 18. Minimizing Estate Taxes — GRAT  Using grantor retained annuity trust (GRAT) removes property from estate while allowing you to retain interest  GRAT receives property  Annuity paid to you for specified period of years, then property passes to beneficiaries  Transfer subject to gift tax (at discounted value)  Property not included in taxable estate as long as you outlive term of years Trust pays you an annuity for term of years Trust Beneficiaries You (and spouse) Transfers assets at end of term Transfer appreciating property
  • 19. Minimizing Estate Taxes — QPRT  A qualified personal residence trust (QPRT) is a trust that is funded with a personal residence  You retain the right to continue living in the home for a specified number of years  As long as you outlive the specified term of years, the home is not included in your taxable estate — but you must pay market rent if you continue to live in the home
  • 20. What Is an Estate Freeze?  Freezes value of property for person removing it from his or her estate  Transfers future growth to person receiving property  Allows retention of some control or financial benefit  Common estate freeze strategies include family limited partnerships, private annuities, installment sales, and gift- or sale-leasebacks
  • 21. Estate Freeze — Family Limited Partnership (FLP)  An FLP is a business entity that enables transfer of family business ownership to next generation  Typically, older generation becomes general partners and younger generation becomes limited partners  Protects limited partners from future creditors of business  Interests gifted to limited partners valued at discounts as high as 60%  High risk of IRS challenge You become general partner, retain as little as 1% interest Family members You (and spouse) FLP You transfer assets to FLP, gift up to 99% of interest to family member limited partners
  • 22. Estate Freeze — Private Annuity  Property sold in exchange for unsecured promise to pay specified income to you (or to you and your spouse) for life  Transaction not subject to gift tax  Property removed from estate entirely Seller(s) You (and spouse) Buyers (children) Income for lifeProperty
  • 23. Charitable Giving  Can be rewarding on a personal level  Fully deductible for gift and estate tax purposes  May also be deductible for income tax purposes  Planned giving options include simple bequests, outright gifts, charitable trusts, charitable annuities, community and private foundations, and donor- advised funds
  • 24.  A CRT is an irrevocable trust that provides payments to you (or you and your spouse) for life  Charity receives property at your death(s)  You can change charitable beneficiary at any time  You may be able to serve as trustee and control assets Charitable Giving — Charitable Remainder Trust (CRT) Payments for life You (and spouse) Trust Charity Charity receives property at your death
  • 25.  With a CLT, charity receives payments during your life, or the lives of you and your spouse, or for a term of years  You or your beneficiaries receive trust principal when trust period ends  Value of transfer reduced by value of payment stream to charity  Channels future appreciation to beneficiaries estate tax free Charitable Giving — Charitable Lead Trust (CLT) You (and spouse) Trust CharityBeneficiaries Payments After trust period ends
  • 26. Charitable Giving — Donor-Advised Fund (DAF) You (and spouse) Property Advice DAF Grants Charity 1 Charity 2 Charity 3  Donor-advised fund (DAF) is an alternative to a private foundation, but easier to create and manage, and requires less money  DAF invests your donations and makes grants to charities  You can offer advice, but DAF is not required to follow your suggestions  Grants can be made in your name or anonymously  Immediate income tax deduction
  • 27. Asset Protection  Your wealth may be vulnerable to future creditors  State and federal law may provide a degree of protection  Adequate insurance protection sufficient for most  Advanced strategies include forming business entity to hold business assets and transferring personal assets to a protective trust
  • 28. Asset Protection — Business Entity  Separate legal entity owns business assets  Business entity responsible for all business debts  Personal assets not at risk for acts of business  Several considerations, including income tax consequences, need to be evaluated in choice of business entity Business owner Business owner creates business entity and transfers business property to the entity. Business entity owns the business property. Business entity Creditors can only reach business assets. Creditors of the business entity Creditors cannot reach business owner’s personal assets. Personal assets Business assets
  • 29. Trustee Asset Protection — Self-Settled Domestic Trust  You can name yourself as primary or even sole beneficiary of self- settled domestic trust  Trustee has discretion todistribute or not distribute trust property  Creditors can only reach property you have legal right to receive  Creditors are unable to reach property while in the trust  Creditors can reach property once it is distributed to you You Domestic trust Your creditors
  • 30. Asset Protection — Offshore/Foreign Trust  U.S. courts have no jurisdiction over foreign trusts  Creditors must commence suits in courts of foreign jurisdiction  Creditors must engage attorney in foreign jurisdiction, and may have to pay fees and bond up front  Obstacles may deter creditors from pursuing action You Offshore/foreign trust Offshore trustee Your creditors Foreign court
  • 31. Conclusion  Is estate tax a planning concern for you?  Do you plan to give or leave property to your grandchildren?  Do you plan to give or leave significant property to charity?  Do you own an interest in a business or farm?  Is asset protection a concern for you? I would welcome the opportunity to meet individually with each of you to address any specific concerns or questions that you may have.
  • 32. Disclaimer IMPORTANT DISCLOSURES D’Arcy Wealth Management, Inc. does not provide investment, tax, or legal advice. The information presented here is not specific to any individual's personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable—we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice.