How To Know If My 3 Yr Old Is Gifted Five Levels of Estate Planning

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Five Levels of Estate Planning

The Five Levels of Estate Planning is a systematic approach to explaining estate planning in a way that you can easily follow. Which of the five levels you need to complete is based on your goals and particular circumstances.

First Level: The Basque Plan

The situation for the first level planning is that you do not have a will or living trust in place, or your existing will or living trust is outdated or inadequate. The objectives of this type of planning are:

or reduce or eliminate the estate tax;

o avoid the cost, delays and publicity associated with probate in the event of death or incapacity; and

o protect the heirs from their incapacity, their incapacity, their creditors and their predators, including ex-spouses.

To accomplish these goals, you will use a pass-over will, a revocable living trust that allocates a married person’s estate between a credit shelter trust and a marital trust, general power of attorney for financial matters, and durable power of attorney for the healthcare. living wills.

Level Two: The Irrevocable Life Insurance Trust (ILIT)

The situation for level two planning is that your estate is planned to be greater than the tax exemption. While there is a current gap in the estate and generation transfer taxes, it is likely that Congress will reinstate both taxes (perhaps even retroactively) sometime this year. If not, on January 1, 2011, the estate tax exemption (which was $3.5 million in 2009) becomes $1 million, and the estate tax rate ( which was 45% in 2009) becomes 55%. However, you can make cash gifts to an ILIT using your $13,000/$26,000 annual exclusion for the beneficiary.

Level Three: Family Limited Partnerships

The situation for level three planning is that you have a projected estate tax that exceeds the life insurance purchased in level two. If your $1 million gift tax exemption ($2 million for married couples) is used to make lifetime gifts, the gifted property and all future appreciation and income on that property are eliminated from the your heritage.

More people will be willing to make gifts to their children if they can continue to manage the endowed property. A family limited partnership (FLP) or family limited liability company (FLLC) can play a valuable role in this situation. He is usually the general partner or manager and in this capacity, continues to manage the assets of the FLP or FLLC. You can also charge a reasonable management fee for your services as a general partner or manager. Also, by gifting FLP or FLLC interests to an ILIT, the income of the FLP or FLLC can be used to pay premiums, thereby freeing up the $13,000/$26,000 annual exclusion for other types of gifts.

Level Four: Qualified Personal Residence Trusts and Grantor Retained Annuity Trusts

The situation for the fourth level planning is the additional need to reduce your estate after your tax exemption of $1/$2 million has been used. Although paying the gift tax is less expensive than paying the estate tax, most people do not want to pay the gift tax. There are many techniques for making substantial gifts to children and grandchildren without paying significant gift taxes.

One technique is a qualified personal residence trust (QPRT). A QPRT allows you to transfer a residence or vacation home to a trust for the benefit of your children, while retaining the right to use the residence for a term of years. By maintaining the right to occupy the residence, the value of the remaining interest is reduced, with the taxable gift.

Another technique is a grant retained annuity (GRAT). A GRAT is similar to a QPRT. The typical GRAT is funded with income-producing property, such as subchapter S stock or FLP or FLLC interests. The GRAT pays you a fixed annuity for a specific term of years. Because of the withheld annuity, the gift to the remaindermen (your children) is substantially less than the current value of the property.

QPRTs and GRATs can be designed with terms long enough to reduce the value of the remainder interest that passes to your children to a nominal amount or even zero. However, if you do not survive the stated term, the property is included in your estate. Therefore, it is recommended that an ILIT be funded as a “hedge” against your death before the end of the stated term.

Level Five: The Zero Estate-Tax Plan

Level five planning is a desire to “dishered” the IRS. The strategy combines gifts of life insurance with gifts to charity. For example, take a married couple, both 55 years old, with a net worth of $20 million. Assume that there is no growth or depletion of assets and that both spouses die in a year when the estate tax exemption is $3.5 million, and the estate tax rate is of 45%.

With the typical marital credit shelter trust, when the first spouse dies, $3.5 million is allocated to the credit shelter trust and $16.5 million to the marital trust. No federal estate tax is due. However, upon the surviving spouse’s death, the estate tax owed is $5.85 million. The net result is that the children inherit only $14.15 million.

With the zero tax plan, the ILIT (with generation skipping provisions) is funded with a $13 million life insurance policy. These gifts reduce the value of the estate to $18 million. In addition, the couple’s trusts each leave $3.5 million (the amount exempt from estate tax) to their children after the surviving spouse’s death. The balance of his estate ($11 million) goes to a public charity or private foundation tax-free. To summarize, the zero estate tax plan provides $20 million (ie, $13 million from ILITs and $7 million from living trusts) to children instead of $14.15 million; charity gets $11 million instead of nothing; and the IRS gets nothing, instead of $5.85 million.

In summary, with a little advanced planning, it is possible to reduce estate taxes, avoid probate, establish your wishes, and protect your heirs from creditors, ex-spouses, and estate taxes.

AS THIS ARTICLE CONTAINS 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 on the taxpayer, according to circular 230.

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