Pre-Election Estate Planning Includes a Vast Variety of Trusts

You might remember a flurry of activity in advance of the 2016 presidential election, when concerns about changes to the estate tax propelled many people to review their estate plans. In 2020, COVID-19 concerns have added to pre-presidential election worries. A recent article from Kiplinger, “Pre-Election Estate Planning Moves for High Net-Worth Families,” describes an extensive selection of trusts that can are used to protect wealth, and despite the title, not all of these trusts are just for the wealthy.

The time to make these changes is now, since there have been many instances where tax changes are made retroactively—something to keep in mind. Tax changes could be enacted well into next year but they could be made applicable retroactive to January 1. Thus strategies may need to be implemented before December 31. The biggest opportunity is the ability to gift up to $11.58 million to another person free of transfer tax. This amount will be reduced by about half in 5 years even if there are no new changes to the law. However, there are many more.

Spousal Lifetime Access Trust (SLAT) The SLAT is an irrevocable trust created to benefit a spouse funded by a gift of assets, while the grantor-spouse is still living. The goal is to move assets out of the grantor spouse’s name into a trust to provide financial assistance to the spouse, while sheltering property from the spouse’s future creditors and taxable estate. Thus, you don’t need to gift assets to children to take advantage of the estate exemption before it is reduced.

Beneficiary Defective Inheritor’s Trust (BDIT) The BDIT is an irrevocable trust structured so the beneficiary can manage and use assets but the assets are not included in their taxable estate.

Grantor Retained Annuity Trust (GRAT) The GRAT is also an irrevocable trust. The GRAT lets the grantor freeze the value of appreciating assets and transfer the growth at a discount for federal gift tax purposes. The grantor contributes assets in the trust and retains the right to receive an annuity from the trust, while earning a rate of return as specified by the IRS. GRATs are best in a low interest-rate environment because the appreciation of assets over the rate goes to the beneficiaries and at the end of the term of the trust, any leftover assets pass to the designated beneficiaries with little or no tax impact. Because the initial contribution comes back to the grantor, no estate exemption is used up.

Gift or Sale of Interest in Family Partnerships. Family Limited Partnerships are used to transfer assets through partnership interests from one generation to the next. Retaining control of the property is part of the appeal. The partnerships may also be transferred at a discount to net asset value, which can reduce gift and estate tax liability. They can be combined with other strategies to produce further tax savings.

Charitable Lead Trust (CLT). The CLT lets a grantor make a gift to a charitable organization while they are alive, while creating tax benefits for the grantor or their heirs. An annuity is paid to a charity for a set term, and when the term expires, the balance of the trust is available for the trust beneficiary. This will be at a much lower value for tax purposes than the actual value of the trust.

Charitable Remainder Trust (CRT) The CRT is kind of like a reverse CLT. In a CRT, the grantor receives an income stream from the trust for a certain number of years. At the end of the trust term, the charitable organization receives the remaining assets. The grantor gets an immediate income tax charitable deduction when the CRT is funded, based on the present value of the estimated assets remaining after the end of the term.

These are a sampling of the types of trusts used to protect family’s assets. Your estate planning attorney will be able to determine if a trust is right for you and your family, and which one will be most advantageous for your situation. Please call me to discuss these ideas or any other concerns you may have. We  can schedule a consultation in person or virtually by Zoom if that is more comfortable for you.

Reference: Kiplinger (Aug. 16, 2020) “Pre-Election Estate Planning Moves for High Net-Worth Families”


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Does More Napping Predict Alzheimer’s?

MedPage Today’s recent article entitled “Long, Frequent Naps Predict Alzheimer’s Dementia notes that elderly people who napped more than once a day had 1.3-fold increased risk of developing future Alzheimer’s dementia.

Peng Li, PhD, of Brigham and Women’s Hospital in Boston, and colleagues at the virtual SLEEP 2020, a joint meeting of the American Academy of Sleep Medicine and the Sleep Research Society announced his findings.

“Importantly, these associations were independent from depressive symptoms, vascular diseases and risk factors, and prescribed medications that may all contribute to sleep,” Li said.

Studies have shown conflicting messages about the connection between daytime napping and cognition, Li said.

“Some research provided evidence that a short, planned nap may improve cognitive performance, while the others suggested that excessive self-reported daytime napping may be tied to cognitive impairment or more cognitive decline,” he told MedPage Today.

“Using a longitudinal design and objective measures of daytime napping based on ambulatory actigraphy, this study for the first time showed that longer and more frequent daytime naps were associated with increased future risk of Alzheimer’s dementia,” he said.

The study had nearly 12,000 people with an average age of 81 from the Rush Memory and Aging Project.

On average, participants napped for 38.3 minutes and 1.56 times a day at baseline. A total of 277 participants developed Alzheimer’s dementia within 5.74 years.

The study found every 30-minute increase in daily napping duration was associated with a 20% increase in the risk of incident Alzheimer’s dementia, after adjusting for age, sex and education.

One more nap per day was linked with a 19% increase in the risk of Alzheimer’s dementia.

The associations remained, even after adjusting for total sleep time.

“One of the unique settings of this study is that participants were followed annually with not only clinical assessments, but also motor activity monitoring that allowed objective measurement of daytime napping behavior,” Li said.

Reference: MedPage Today  (Aug. 30, 2020) “Long, Frequent Naps Predict Alzheimer’s Dementia”


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Trusts: The Swiss Army Knife of Estate Planning

Trusts serve many different purposes in estate planning. They all have the intent to protect the assets placed within the trust. The type of trust determines what the protection is, and from whom it is protected, says the article “Trusts are powerful tools which can come in many forms,” from The News Enterprise. To understand how trusts protect, start with the roles involved in a trust.

The person who creates the trust is called a “grantor”, “trustmaker” or “settlor.” The individuals or organizations receiving the benefit of the property or assets in the trust are the “beneficiaries.” There are two basic types of beneficiaries: present interest beneficiaries and “future interest” beneficiaries. The beneficiary, by the way, can be the same person as the grantor, for their lifetime, or it can be other people or entities.

The person who is responsible for the property within the trust is the “trustee.” This person is responsible for caring for the assets in the trust and following the instructions of the trust. The trustee can be the same person as the grantor, as long as a successor is in place when the grantor/initial trustee dies or becomes incapacitated. However, a grantor cannot gain asset protection through a trust, where the grantor controls the trust and is the principal recipient of the trust.

One way to establish asset protection during the lifetime of the grantor is with an irrevocable trust. Someone other than the grantor must be the trustee, and the grantor should not have any control over the trust. The less power a grantor retains, the greater the asset protection.

One additional example is if a grantor seeks lifetime asset protection but also wishes to retain the right to income from the trust property and provide a protected home for an adult child upon the grantor’s death. Very specific provisions within the trust document can be drafted to accomplish this particular task.

There are many other options that can be created to accomplish the specific goals of the grantor.

Some trusts are used to protect assets from taxes, while others ensure that an individual with special needs will be able to continue to receive needs-tested government benefits and still have access to funds for costs not covered by government benefits.

An estate planning attorney will have a thorough understanding of the many different types of trusts and which one would best suit each individual situation and goal.

If you would like to discuss the various trust options that are available please contact me to set up a consultation. This can be done with a socially distanced in person meeting, or virtually through Zoom, if that is more comfortable for you.

Reference: The News Enterprise (July 25, 2020) “Trusts are powerful tools which can come in many forms”


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