Tools of Advanced Estate Planning

If your estate is exposed to estate tax, you may want to consider ways of reducing that exposure. Doing so will often involve the use of less widely-known techniques and trusts which assure your financial security and your lifestyle, but which substantially reduce the impact of federal and state wealth transfer taxes.

More advanced planning is typically undertaken by individuals that have retired and have reached age 60. The size of your estate will often create exceptions to this rule. Some advanced estate planning is simple, can be completed in a short amount of time, and can generate substantial benefits, while others are more of a process which involves ongoing implementation and refinement.

Leaving Smart Inheritances

Whether wealth is passed by gift or at death, through wills or trusts, it should be protected.

Most individuals understand their estate tax exemption, but fail to effectively use their GST exemption. The GST exemption is the most powerful exemption we have.

All wealth that passes, however, should be protected from divorce risks, the risk that on a child or grandchild’s death that their spouses will elect to take against your child or grandchild’s will (and your assets), the risk of creditor attack, and further taxation.

Smart wealth is transferred using trusts that offer an umbrella of protection, but with control in the hands of the child or grandchild, or whomever you wish.

Family Gifting Trust

  • Ability to shelter wealth over multiple generations.
  • Protection against future estate and gift tax laws.
  • Protection of assets from divorce risks and rights of in-laws at death.
  • Ability to count many family members to enhance annual gifting ability, but can provide distributions on a preferential basis to certain groups of beneficiaries; i.e., children first, then grandchildren.
  • A spouse can be a lifetime beneficiary, but doing so may reduce gifting ability unless gift splitting is chosen.
  1. Upon C3’s death the assets can be divided equally amongst C1 and C2, since C3 has no children. See illustration above.
  2. If you do not desire to transfer $26,000 times 8 family members because you are concerned about your financial security, an alternative is to have one of you, if you are married (the spouse with the shortest life expectancy – typically the husband), gift $13,000 per beneficiary with the other spouse (typically – the wife) as the primary beneficiary until death. Only then do the assets divide for the benefit of the children and their families, but the assets gifted are removed from your taxable estate.

Qualified Personal Residence Trust

  • A favorable means of removing the value of up to two homes from your taxable estate.
  • You may retain the ability to buy and sell the home(s).
  • Most Florida counties now continue to permit the Homestead tax exemption for homes in QPRTs.
  • If a home is sold but not replaced during the retained term, cash flow is available for the balance of the term.
  • After the selected term expires, the home must be rented for its continued use or a gift must be made from children for continual use. This can be done in a favorable manner and often produces beneficial results.

Leveraging Off Of The Applicable Federal Rate

  • The U.S. Government establishes an investment rate of return which it says you cannot beat. Wealth in excess of this rate can be transferred to junior family members without causing a taxable gift or estate tax. The Code Section 7520 rate was 2.4% in March, 2009. The lower the Code Section 7520 rate, the easier it is to shift tax free wealth to junior family members. It is at or near the lowest point in its history.
  • These strategies are useful even when your tax free gifting ability has all been used.
  • If units in a Family Holding Company are used, greater leverage may be achieved due to common valuation discounts.
  • Common methods of achieving this result are with GRATs, GRUTs, SPLATs, and SPLUTs or sales of remainder interests in property or to defective trusts.

Use Of Actuarial Tables

  • Actuarial tables assume normal life expectancy. They are useful to reduce estate tax if a person is not likely to live their normal life expectancy.
  • They also assume a reciprocal discount and compounding rate equivalent to the Code Section 7520 rate. The Code section 7520 rate in February, 2009 was 2.0%.
  • If death is not imminent (greater than 50% chance will survive one (1) year), normal life expectancy can be used to enhance gifting or estate tax reduction using various sophisticated strategies even though normal life expectancy is not likely to be achieved.
  • IRS has recently authorized SPLATs, which involve a sale of a remainder interest in exchange for an annuity that is payable by junior family members who have substantial independent financial means.

Family Holding Company

Generally structured as a Family Limited Partnership (“FLP”) or a Delaware Business Trust (“DBT”).

Offers various tax savings opportunities:

  • Florida intangible tax avoidance;
  • Non-Florida death tax avoidance on non-Florida real property; and
  • Favorable vehicle for integrating with other tax savings techniques. Liability and asset protection; privacy.

Ease and flexibility in making gifts and managing assets.

Management can be retained or delegated and is quite flexible.

Equity ownership, management, and cash flow can be separated permitting management by some family members and not others, while cash flow and equity appreciation shifts to other family members.

Charitable Lead Trust

  • Useful where gifts are periodically given to charity.
  • Advantages over periodic gifting to charity, because it enhances your ability to transfer tax free wealth to children and grandchildren.
  • Control may be retained over the principal investment assets.
  • Significant income tax deduction may be obtained.
  • Some gift will normally occur upon creation, which is dependent upon the value of what is deemed to pass to charity on creation. (Value is determined based upon actuarial tables.)
  • Can be created before or at death.

Charitable Remainder Trust

  • Useful in order to avoid capital gains on the sale of assets in order to diversify or generate greater cash flow.
  • Cash flow (typically 6% to 10% of the value of the asset transferred valued annually) is retained for life of one or more individuals or for a term of years not to exceed 20 years.
  • The cash flow can be extended over multiple generations.
  • Can be structured to provide a large current income tax deduction and deferral of income (cash flow) until later years.
  • Can extend over the lifetime of senior family members and junior family members, but doing so will reduce the available income tax deduction.
  • Often can provide greater cash flow to both senior family and junior family members.
  • A useful repository for IRD (income in respect of a decent at death) from IRAs, other retirement plans, partnership interests, and various contract rights. Can reduce estate taxes and defer income taxes beyond the normal deferral rules.
  • Can be created before or at death.


  • Greater control of family wealth retained by family, rather than having wealth paid to the government as taxes which are forever lost from family control.
  • Family philanthropic objectives can be enhanced and perpetuated.
  • Recent legislation reinstates old law that permits full fair market value income tax deduction for contributions of publicly traded securities.
  • Greater cash flow and financial power can often be retained by families where foundations are used in conjunction with charitable lead and remainder trusts.
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