Federal Estate, Gift, and Generation Skipping Transfer (GST) Taxes

These transfer taxes are a flat 40%, so any saving is bound to be significant. Whether the estate tax threshold is $5 million, plus inflation, as it is scheduled to be in the year 2026, or whether it remains at double that amount ($11.7 million in 2021) is yet to be seen. But, we are always cautious for folks in the high net worth (HNW) and ultra-high net worth (UHNW – $20 million-plus) wealth categories because they are likely to face estate taxes at the federal level, and often at the state level as well.

There are numerous other trust-based techniques that make for interesting conversations with estate planners. Most clients in the UHNW category should start by considering a lifetime transfer up to the threshold, in trust. Given that anything over the threshold will be subject to tax, gifting ahead of time, in trust, will

(a) freeze the exemption used to the amount in today’s dollars (without appreciation until death) and

(b) provide a hedge against the threshold being lowered, as advocated by lawmakers looking for more tax revenue.

Most states have repealed their estate tax, including all of the southern U.S. However, we may see states adopting the estate tax again. California, for example, has flirted with reinstating the estate tax. Many northern and central states have kept their estate tax but have raised the exemption amounts to be near or comparable to the federal level. However, there are a handful of states with low thresholds, like Massachusetts, Rhode Island, and Oregon. Smart planning around such state taxes is vital in Enhanced Planning.

Trust Income Taxation

An Enhanced Plan also will consider income tax consequences of irrevocable trusts. Clients who live in states with income taxes of their own (which is the vast majority) can save state income tax on trust-owned assets by locating a non-grantor trust (one that is not personally taxed to the trust grantors) in a friendly jurisdiction, of which there are many to choose.

For example, a Massachusetts resident who sets up a trust in Delaware, Nevada, or New Hampshire (to pick popular examples) and hires a trustee in that state to keep the assets invested for the long-haul (under the client’s direction) can save 5.1% per year in state income taxes. The savings are even greater if the resident lives in Connecticut (6.99%), Vermont (8.75%), New York (8.82%), or California (13%+). In addition to the hundreds of thousands saved in state income taxes over time, these trusts will also provide protection of the assets from beneficiaries’ risk of debt, divorce, disability, destructive spending, disinterest, disputes, and death (the “Killer Ds”).

Unique Assets and Issues

Enhanced Planning helps with advanced asset protection, business succession, shared vacation or heirloom property agreements, as well as charitable trusts and foundations. Enhanced Planning looks beyond the typical four corners of either a Simple Trust or Protection Trust Plan and is customized to address the specific needs of each family.

Independent Trustees

Most clients’ families will benefit from our service as an Administrative Trustee; HNW and UHNW clients will benefit from the services of an independent trustee to protect assets against the Killer Ds. We mostly serve as independent trustees through our trustee company, which provides objectivity when applying the principles of your legacy. Family members don’t intend to jeopardize assets, but by nature they do because of their conflicts of interest, and because they are considered “interested parties” under the tax code.

Support

Finally, we want to talk with clients who have enhanced planning needs every year. We do so through our Trust Support Prime program that is designed to meet your needs in multiple planning areas at once.

With over 30 years of specializing in trust planning, we have the experience and knowledge to meet all of your estate planning needs. If your estate could benefit from enhanced planning, schedule a complimentary consultation with one of our paralegals to start the conversation: