This article focuses on advanced estate planning and asset protection for affluent families. Over 65 types of trusts exist in estate planning. Each trust serves a different need or purpose. One type of estate plan may fit for one individual or family; yet may not be the best solution for another. Most are familiar with the terms Last Will and Testament or a Living Trust. Wills and Living Trusts provide a foundation for advanced estate planning solutions. Still, many do not understand advanced estate planning for asset protection. Let’s review some basic information about wealth management for estate planning.
Wealth Management Goals
Often affluent families work with financial advisors for asset management. Many overlook the need for advanced estate planning to protect their wealth. The goal of asset protection is to reduce a person’s financial footprint. Wealth management is part of advanced estate planning that creates solutions for economically affluent families. Why Now: The recent crisis of debt, business closings, and unemployment during Covid-19 impacted even the wealthiest of families. Low interest rates, future tax changes, and a recession is the perfect time to consider protecting family wealth.
Planning and Wealth Management
Planning and timing are important factors for advanced estate planning. Money cannot be transferred to another person with the intent to avoid creditors and payment of debt. The Uniform Fraudulent Transfer Act (now called Uniform Voidable Transaction Act) 11.U.S. Code §548; and MO Revised Statute 428.024 (2021 Edition), provides a means for transfers to be voided if the grantor transfers wealth with the purpose to “hinder, delay, or defraud a creditor…” which includes incurring more debt than is repayable, concealing assets, or selling assets below fair market value. When working with wealth management, it is important to keep in mind that the goal is to transfer assets for the benefit of the grantor, the family, and generational wealth. It’s important to plan wisely and avoid a fraudulent transfers of assets.
Wealth Management Trust Options
What are some options for advanced estate planning? Some types of trusts for wealth management include different irrevocable trusts where the Grantor still receives benefits from the assets. Irrevocable trusts in wealth management differs from those created for people needing government benefits such as Medicaid. Advanced planning serves a different purpose for intrafamily wealth transfers. One type of irrevocable trust is an Irrevocable Life Insurance Trust (ILIT). Other trust solutions include Grantor Retained Annuity Trusts (GRAT), Grantor Retained Income Trusts (GRIT), or a Grantor Personal Residence Trust (GPRT). Perhaps a person needs a Domestic Asset Protection Trust (DAPT) or a Foreign Asset Protection Trust (FAPT). Sometimes people may want to leave an estate or specific gifts to charity in a Charity Trust. A Charity Trust is created during life or receives assets at the grantor’s death. Advanced options fit the unique needs of the individual and family goals.
Estate Tax Planning
Missouri does not have an estate tax; however, the Federal government does have an estate tax. As a result of the Tax Cut and Jobs Act (TCJA) of 2017, tax exemptions for the wealthy doubled. For 2021, the tax exemption is 11.7 million per individual with a wealthy couple sheltering over $23.4 million for heirs without paying tax. The federal tax exemption affects less than 1% of estates. Since Biden’s election, it is proposed that the federal tax exemption amount return to the 2009 level of $3.5 million with a top tax rate of 45%. Even then the estate tax affects less than 2% of estate wealth. If it returns to the 2009 level, the IRS will not use claw back provisions. Now is the opportunistic time to protect wealth and to create trusts that preserve intrafamily wealth.
Estate Tax and U.S. Citizenship
Wealth management, bequests, and transfers depends on estate tax planning. How does citizenship status affect estate planning? First, if a person resides in the United States for 183 days or more out of the year and owns a home, he or she is subject to federal capital gains tax. Also, the estate tax exemption is only $60,000. Proper wealth management is essential for non-U.S. citizens or a spouse who is not a U.S. citizen.
U.S. Citizens qualify for an 11.7 million estate tax exemption. However, due to the recession, national debt, and unemployment rate, there is a current move to cut tax exemptions and increase estate tax. The tax exemption may be lowered to 5 million or even as low as 3.5 million, the rate set in 2009. U.S. Citizens are subject to 40% tax on bequests or transfers. The timing for intrafamily wealth transfers and wealth management is now.
Basically, a Living Trust is a foundation for advanced estate planning tools. Asset Protection is wealth management. Seriously, it’s important to talk to an estate attorney for the right type of planning for you. You can use a range of estate planning solutions for asset protection to accommodate your family’s specific needs, provide for future generations, and protect assets from seizure by creditors. Tucker Legal Services is a full estate planning law firm. Call me at 314-332-0011 for a complimentary consultation or book now for your estate planning consultation.