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Pre-2021 estate planning moves for high-net-worth individuals

| Oct 30, 2020 | Estate Planning |

Regardless of the 2020 election outcome, the relationship between politics, policies and estate planning are inextricably linked.

The last four years have created some advantages for wealthy individuals to reduce taxes and other related costs, thereby maximizing their estate’s value to pass to the next generation.

Opportunity No. 1: Transfer taxes

The most significant move to consider for high-net-worth individuals is gifting up to $11.58 million free of federal transfer taxes. The exemption for 2020 is more than twice what it was in 2016. The higher exemption is set to expire in 2026, returning to roughly $5 million. However, an uncertain political climate could bring changes sooner.

Additional high-asset moves to consider

People with an estate of $10 million to $20 million can benefit from other maneuvers that provide significant reductions in estate tax liabilities. Depending upon your strategy, these moves may be a good fit:

Strategy: Benefitting from appreciating assets removed from a taxable estate

  • Spousal Lifetime Access Trust: The SLAT is funded by a gift for a spouse while the grantor-spouse is still alive.
  • Beneficiary Defective Inheritor’s Trust: As an irrevocable trust, a BDIT brings the benefits of a traditional trust without releasing control of the property.

Strategy: Transferring assets and appreciation to future generations

  • Grantor Retained Annuity Trust: GRATs are irrevocable trusts allowing the grantor to freeze the value of appreciating assets and transfer that growth at a discount for federal tax benefits.
  • Sale or gift of an interest in family partnerships: Family Limited Partnerships allow assets to be transferred, via partnership interest, to the next generation without losing control of the property.

Strategy: Benefitting charities as well as heirs or grantors

  • Charitable Lead Trust: CLTs have immediate benefits for charitable organizations while the grantor is still alive while providing tax benefits for the grantor or their heirs.
  • Charitable Remainder Trust: A CLT lets the grantor maintain an income stream while he or she is alive, and the charity receives what’s left at the end of the trust term.

Finding the best strategy

While the possibilities for significant estate and gift-tax moves remain favorable, every estate is different and not every strategy will be a good fit. An experienced estate planning attorney will thoroughly examine your family’s objectives to find the best approach for maximizing your wealth.

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