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Planning Strategies
The metaphor often used in planning is that of a tool box, which contains many types of tools each with its own specific purpose.
As we always tell our clients: this is your Plan, not ours. So share with us your goals, dreams and desires and we will do our utmost to ensure these things are all realized. And depending on what each of those goals and dreams are, there is very likely a strategy or technique—aka tool—to help us get you there.
Below are some examples of these techniques. Each one is incredibly effective and will accomplish what you’re seeking. Each one is very specific as to its purpose and impact.
And often in planning, it takes a few different tools to achieve all the goals we are seeking.
As we always tell our clients: this is your Plan, not ours. So share with us your goals, dreams and desires and we will do our utmost to ensure these things are all realized. And depending on what each of those goals and dreams are, there is very likely a strategy or technique—aka tool—to help us get you there.
Below are some examples of these techniques. Each one is incredibly effective and will accomplish what you’re seeking. Each one is very specific as to its purpose and impact.
And often in planning, it takes a few different tools to achieve all the goals we are seeking.
Spousal Lifetime Access Trust (SLAT)
SLAT’s have become exceptionally popular in the estate planning community because of their unique ability to solve a number of issues. In very basic terms, usually the only way to remove an asset from potential estate taxes is to gift the asset out of the estate.
The problem with this is that by doing so you must give up access to that asset. And for clients under the age of say, 60 that can be a daunting thought as they may feel they might one day still need access to that asset.
The SLAT solves this dilemma. A SLAT is designed to remove the asset from one’s estate while still providing access to that asset via a spousal beneficiary. Assets can be gifted to the SLAT over time thereby removing them from the estate (and estate taxes) while still providing access to these assets via one’s spouse.
Additionally, because of the SLAT’s design it is not subject to the claims of creditors, lawsuits or rogue family members. Finally, it can also be designed to benefit children, grandchildren & other beneficiaries.
The problem with this is that by doing so you must give up access to that asset. And for clients under the age of say, 60 that can be a daunting thought as they may feel they might one day still need access to that asset.
The SLAT solves this dilemma. A SLAT is designed to remove the asset from one’s estate while still providing access to that asset via a spousal beneficiary. Assets can be gifted to the SLAT over time thereby removing them from the estate (and estate taxes) while still providing access to these assets via one’s spouse.
Additionally, because of the SLAT’s design it is not subject to the claims of creditors, lawsuits or rogue family members. Finally, it can also be designed to benefit children, grandchildren & other beneficiaries.
Dynasty Trusts
Estate taxes are, in essence, transfer taxes. That is, they tax each generation as assets are passed on, i.e. transferred, to the next generation. This can become quite problematic and corrosive as the assets can become quite diminished over time from these successive transfer taxes.
A Dynasty Trust is designed to protect and enhance the assets that are placed in the Trust, for multiple generations. Once in the trust they are shielded from these transfer taxes. Additionally, because of the nature of the Dynasty Trust it provides privacy and professional management of the assets. Often times, insurance is used to leverage the value of the assets in the trust thus providing an even greater amount of assets to be kept & passed on in the family.
Dynasty Trusts are very popular tools in the planning community and are very effective in reducing taxes and keeping more of the family’s assets in the family.
A Dynasty Trust is designed to protect and enhance the assets that are placed in the Trust, for multiple generations. Once in the trust they are shielded from these transfer taxes. Additionally, because of the nature of the Dynasty Trust it provides privacy and professional management of the assets. Often times, insurance is used to leverage the value of the assets in the trust thus providing an even greater amount of assets to be kept & passed on in the family.
Dynasty Trusts are very popular tools in the planning community and are very effective in reducing taxes and keeping more of the family’s assets in the family.
IntraFamily or Private Loan to a Trust
Very often when a large estate tax problem is looming the attorney and other advisors will recommend using life insurance to address the estate tax liquidity issue. This is because insurance provides immediate liquidity when one passes and also because it is by far the most efficient way to pay the estate taxes (paying each dollar of tax for 15-20 cents).
And when sizable amounts of insurance coverage are needed this can present an issue as those premium dollars must be gifted to the Trust holding the insurance & that can create potential gift tax issues.
By loaning those dollars to the Trust vs gifting, this can eliminate the gift tax issue. Furthermore, because it is a loan those dollars can be paid back to the client/grantor. So think of it as moving money from your left pocket to your right pocket. And if these funds are properly invested, the earnings can be used to pay the premiums vs using the principal to pay the premiums.
End of the day, the client can acquire a sizable amount of insurance to pay the estate taxes with heavily discounted dollars, while avoiding gift taxes all while also being repaid. It’s an extremely effective strategy and solves many issues at once.
And when sizable amounts of insurance coverage are needed this can present an issue as those premium dollars must be gifted to the Trust holding the insurance & that can create potential gift tax issues.
By loaning those dollars to the Trust vs gifting, this can eliminate the gift tax issue. Furthermore, because it is a loan those dollars can be paid back to the client/grantor. So think of it as moving money from your left pocket to your right pocket. And if these funds are properly invested, the earnings can be used to pay the premiums vs using the principal to pay the premiums.
End of the day, the client can acquire a sizable amount of insurance to pay the estate taxes with heavily discounted dollars, while avoiding gift taxes all while also being repaid. It’s an extremely effective strategy and solves many issues at once.
These are just some of the more commonly used techniques used in the estate planning arena. Contact us at Navon Wealth Advisors to discuss how these strategies or others may effectively fit into your planning. Again, it’s your Plan. And it’s our job to help you achieve your dreams and goals.