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ADVANCED ESTATE PLANNING STRATEGIES

ADVANCED ESTATE PLANNING STRATEGIES

With a new decade upon us, and some significant changes to our tax code, business owners and professionals are searching for tools to optimize and advance their estate and tax planning strategies.  There are a number of advanced estate planning strategies that can minimize income and estate taxes and provide asset protection.  Included below is a summary of a few of these strategies. 

LLCs – Leaving a Legacy

A family Limited Liability Company (or “LLC”) is often overlooked as an estate planning tool used to steward wealth transfers to multiple generations while minimizing estate taxes.  An LLC is a business entity that provides asset protection and a more flexible tax and administrative structure than a corporation.  Members of an LLC can be almost anyone, including a trust established for the benefit of children who are not ready to receive gifts or an inheritance outright.  LLCs can own almost any type of asset, including real property, personal property, and investments.  In addition, with proper planning, an LLC can allow you to maintain control of your legacy assets during life while simplifying asset division at a later date.  You can transfer interests in the LLC to your children at a discounted value, thereby minimizing estate taxes.   

GRATs – Shifting Appreciation

A Grantor Retained Annuity Trust (or “GRAT”) is a trust you would establish to minimize estate tax on highly appreciating assets.  The structure of the GRAT planning process is as follows: i) you transfer assets to a GRAT you set up; ii) over a certain term of years that you establish, you receive assets back from the GRAT equal in value to what you transferred, plus a relatively small rate of return required by the IRS; and iii) any value above what you get back from the GRAT (i.e. the appreciation) stays in trust for your spouse/children.  The appreciation that stays in trust for your spouse/children avoids estate tax.   

CRTs – Charitable Planning

A Charitable Remainder Trust (or “CRT”) is set up to defer tax on gain recognized when appreciated assets are sold.  The assets in the trust ultimately are distributed to one or more charities of your choosing.  The structure of the CRT planning process is as follows: i) you transfer appreciated assets to a CRT you set up and receive a charitable income tax deduction; ii) the CRT sells the assets you contributed and pays no income tax on the gain recognized; iii) the CRT distributes cash to you (or any other beneficiary you name) over a number of years or for the beneficiary’s lifetime; and iv) upon the termination of the CRT, the remaining assets pass to the charities you named.  CRTs are powerful tools that can provide an income stream from an illiquid asset, while deferring, and in some cases minimizing, income taxes. 

ILITs – Estate Tax Planning with Life Insurance

Many people have heard the rule that life insurance is not subject to tax.  While that is true for income tax, life insurance proceeds are subject to estate tax.  An Irrevocable Life Insurance Trust (or “ILIT”) is a powerful planning tool available to avoid estate tax on life insurance proceeds.  The ILIT planning structure works as follows: i) you establish an ILIT and have the ILIT purchase life insurance on your life (or you transfer an existing policy to the ILIT); ii) you gift the ILIT cash necessary to pay premiums on the policy; and iii) upon your death, the policy’s death benefit is paid to the ILIT and is not subject to estate tax.  The ILIT states where the proceeds end up, frequently in trusts for your spouse or children.  This planning tool allows you to leave life insurance to your beneficiaries while protecting that life insurance from estate tax that would otherwise be due if you owned the policy in your name. 

SLATs – Use Your Exemption

Spousal Lifetime Access Trusts (or “SLATs”) are trusts that allow you to use your historically high federal estate tax exemption (currently $11.58M).  The federal gift/estate tax exemption is the amount a taxpayer can pass while alive or at death free of gift or estate tax.  The exemption will drop by approximately one-half at the beginning of 2026.  A SLAT allows you to use the higher exemption amount before it is reduced.  The SLAT planning structure works as follows: i) you transfer assets to a SLAT you set up, which uses up a portion of your federal estate tax exemption; ii) your spouse is the beneficiary of the SLAT and has access to the assets for his/her lifetime; iii) upon your spouse’s death the remaining assets pass to trusts for your children; and iv) the SLAT assets, and whatever they appreciate to during your lifetime, are not subject to estate tax.    

Gifting Trusts – Delayed Access and Creditor Protection

A gifting trust is an irrevocable trust that is set up while you are alive, usually for the benefit of your children.  If you gift assets directly to a child, the assets are subject to creditor claims and can be used by the child however he or she chooses.  If instead, assets are gifted to a trust for the child, the assets are protected from future creditors (including a spouse).  The trust allows you to gift assets out of your estate to minimize estate taxes, while ensuring your children and your assets are protected. 

Please note, estate planning in general and these tools in particular can be complicated.  If you are considering pursuing any of these options or would like to learn more about them, we recommend that you consult with an estate planning attorney to discuss maximizing the significant benefits available and avoid any pitfalls.    
 
The estate planning lawyers at Gevurtz Menashe have deep knowledge of the estate planning laws in both Oregon and Washington. We can help you minimize income and estate taxes and provide asset protection to the people and cause you care about most. Call our Portland offices at 503-227-1515, our Vancouver offices at 360-823-0410, or contact us online to get started.

Authored by Stefan Wolf & Amy Cross, Estate Planning Attorneys at Gevurtz Menashe. They are both members of the Oregon and Washington state bars and focus their practice exclusively on estate planning issues including wills and revocable trusts, estate and gift taxes, probate administration, asset protection planning, special needs planning, guardianships, and beneficiary and trustee representation.