Estate Planning for High Net Worth Individuals
You have worked hard your whole life to provide for your family and make your loved ones more secure. Without advanced estate planning strategies, your heirs will unnecessarily pay federal and state estate taxes.
Our firm regularly assists affluent families with such sophisticated planning strategies as Family Limited Liability Companies, Personal Residence Trusts, Irrevocable Life Insurance Trusts, Grantor Trusts and a wide range of charitable gifting techniques to reduce federal estate taxes, gift taxes and generation skipping transfer taxes.
Family Limited Liability Company
A Family Limited Liability Company (FLLC) is a limited liability company formed members of a family. The main advantages of forming and funding a FLLC are estate and gift tax savings and asset protection.
To establish a FLLC, you would transfer assets to the FLLC in exchange for voting and non voting interests in the FLLC. Once the FLLC is established and your assets are transferred to it, you can make gifts of non voting interests to trusts for your children or other beneficiaries. This accomplishes several different estate planning objectives simultaneously.
First, the value of each nonvoting interest which you give away decreases the value of your taxable estate and, consequently, any tax which your heirs would have to pay upon your death. The gifts are made using the annual gift tax exclusion and your lifetime gift tax exemption. Sophisticated techniques are used so you do not have to pay any gift tax on the transfer.
Second, the value for gift tax purposes of the non voting interests transferred to your beneficiaries is far less than the corresponding value of the assets in the partnership. Since non voting members in the FLLC do not have the ability to direct or control the day-to-day operation of the FLLC, a minority discount can be applied to reduce the value of the non voting interests which you are gifting. Furthermore, because the FLLC is a closely-held entity and not publicly-traded, a discount can be applied based upon the lack of marketability of the non voting interests. This allows you to leverage the FLLC as a vehicle to transfer more wealth to your beneficiaries. Lastly, a properly-structured FLLC has creditor protection benefits.
Qualified Personal Residence Trusts
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. You transfer the title to your house to the QPRT, 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) is held in trust for your spouse, thereby insuring the continued right to live in the house. After your spouse's death, the house passes to trusts for your children or other beneficiaries free of any additional estate or gift taxes. If your spouse predeceases you, you may continue to live in the home but you must pay rent to the trusts for your family or designated beneficiary in order to avoid inclusion of the residence in your estate. This is an added benefit as it serves to further reduce the value of your taxable estate without your making taxable gifts. The rent income does not have income tax consequences for your family. If you die before the end of the period, the full value of the house will be included in your estate for estate tax purposes, though you will be 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.
Irrevocable Life Insurance Trusts
There is a common misconception that life insurance proceeds are not subject to Federal Estate Taxes. While the proceeds are received by your loved ones free of any income taxes, they are countable as part of your taxable estate.
An Irrevocable Life Insurance Trust (ILIT) is created specifically for the purpose of owning and being the beneficiary of your life insurance policy. A properly established and administered trust holds the policy outside of your estate and keeps the proceeds from being taxable to your estate. The proceeds from the insurance policy can then be used to provide your estate with the liquidity to pay estate taxes, pay off debts, pay final expenses and provide income to a surviving spouse or children.
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 and effective estate plan that allows for the maximum transfer of assets to your loved ones.
Our firm regularly assists affluent families with such sophisticated planning strategies as Family Limited Liability Companies, Personal Residence Trusts, Irrevocable Life Insurance Trusts, Grantor Trusts and a wide range of charitable gifting techniques to reduce federal estate taxes, gift taxes and generation skipping transfer taxes.
Family Limited Liability Company
A Family Limited Liability Company (FLLC) is a limited liability company formed members of a family. The main advantages of forming and funding a FLLC are estate and gift tax savings and asset protection.
To establish a FLLC, you would transfer assets to the FLLC in exchange for voting and non voting interests in the FLLC. Once the FLLC is established and your assets are transferred to it, you can make gifts of non voting interests to trusts for your children or other beneficiaries. This accomplishes several different estate planning objectives simultaneously.
First, the value of each nonvoting interest which you give away decreases the value of your taxable estate and, consequently, any tax which your heirs would have to pay upon your death. The gifts are made using the annual gift tax exclusion and your lifetime gift tax exemption. Sophisticated techniques are used so you do not have to pay any gift tax on the transfer.
Second, the value for gift tax purposes of the non voting interests transferred to your beneficiaries is far less than the corresponding value of the assets in the partnership. Since non voting members in the FLLC do not have the ability to direct or control the day-to-day operation of the FLLC, a minority discount can be applied to reduce the value of the non voting interests which you are gifting. Furthermore, because the FLLC is a closely-held entity and not publicly-traded, a discount can be applied based upon the lack of marketability of the non voting interests. This allows you to leverage the FLLC as a vehicle to transfer more wealth to your beneficiaries. Lastly, a properly-structured FLLC has creditor protection benefits.
Qualified Personal Residence Trusts
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. You transfer the title to your house to the QPRT, 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) is held in trust for your spouse, thereby insuring the continued right to live in the house. After your spouse's death, the house passes to trusts for your children or other beneficiaries free of any additional estate or gift taxes. If your spouse predeceases you, you may continue to live in the home but you must pay rent to the trusts for your family or designated beneficiary in order to avoid inclusion of the residence in your estate. This is an added benefit as it serves to further reduce the value of your taxable estate without your making taxable gifts. The rent income does not have income tax consequences for your family. If you die before the end of the period, the full value of the house will be included in your estate for estate tax purposes, though you will be 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.
Irrevocable Life Insurance Trusts
There is a common misconception that life insurance proceeds are not subject to Federal Estate Taxes. While the proceeds are received by your loved ones free of any income taxes, they are countable as part of your taxable estate.
An Irrevocable Life Insurance Trust (ILIT) is created specifically for the purpose of owning and being the beneficiary of your life insurance policy. A properly established and administered trust holds the policy outside of your estate and keeps the proceeds from being taxable to your estate. The proceeds from the insurance policy can then be used to provide your estate with the liquidity to pay estate taxes, pay off debts, pay final expenses and provide income to a surviving spouse or children.
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 and effective estate plan that allows for the maximum transfer of assets to your loved ones.