Advanced Estate Planning

In Florida, advanced estate planning is advisable where the assets of an estate are close or beyond the federal tax exemption limit of $5.4 million. This is different from other states where you also have to account for a state estate tax, since Florida does not have one. This could be the case where a family has money that has trickled down over generations or even a profitable family business. The tax exemption limit changes each year, but has remained at $5 million for the past few years. Advanced estate planning includes tools such as irrevocable trusts and business planning and is utilized to keep assets from being taxed at the highest tax rate as they move from generation to generation. One or more irrevocable trusts can be used, in addition to basic estate planning and business planning, to achieve this result.

One of the most well known irrevocable trusts includes the irrevocable life insurance trust (“ILIT”). The ILIT is most often used in connection with a life insurance policy where the receipt of such death benefits will make it probable that the estate will exceed the federal exemption limit (thus triggering estate taxation). To utilize the irrevocable life insurance trust, a person must first open a life insurance policy with a financial planner and then designate the ILIT as the beneficiary. The ILIT should further designate beneficiaries who will receive the life insurance proceeds at death.

Another irrevocable trust is the qualified personal residence trust (“QPRT”). The QPRT allows for the discounting of a primary home’s value (for estate taxation purposes) if a grantor outlives the number of years stated in the trust. The QPRT can designate specified beneficiaries to receive the property after a set number of years, or it could designate another irrevocable trust to receive the property. If the grantor does not outlive the number of years, the full value of the home falls back into the estate and there is no discounting.

The intentionally defective grantor trust (“IDGT”) is a third advanced estate planning tool that is often used to keep businesses and other high net worth assets from incurring estate taxation. The IDGT works alongside business planning to remove valuable real estate and profitable business entities out of a grantor’s individual name, while still allowing the grantor to receive the income benefits of these assets during lifetime. Such trust planning is very advanced and should only be undertaken by experienced estate planning professionals.

Contact Capital Planning Law, PLLC for your complimentary consultation to discuss your estate planning, business law, probate, guardianship and/or real estate needs.