is about transfer of assets after one's
death and the taxes and fees related to the transfer,
gifts were used while one is alive.
are: Probate fees charged by the court for assets
passing by probate.
Using a Revocable Living Trust is a way to make assets transfer by contract and thus avoid probate, saving probate fees, time and privacy. It does not save on estate tax or income tax. When someone dies the revocable trust splits into an A Trust and a B trust with the deceased exemption amount in one trust and the excess in the other trust. That way the exemption amount (over $5,000,000 in 2014) is preserved free of tax to be sent downstream to the children. However, while the surviving spouse is alive, the spouse gets to draw on the income generated by the exemption trust.
Doing Charitable Gifting is a way to reduce estate tax and income tax. This would need integrated financial planning to determine how much tax would be saved and whether one would be able to afford to give the gifts.
Qualified Retirement Accounts such as 401k, 403b, IRA, etc. pass by contract based on the beneficiary designation statement, which can not be overruled by court order or by a Will. This is why it is vital to do a full financial plan and examine estate planning issues. As a rule of thumb it is far more flexible and more reliable for estate planning purposes to have assets in an IRA than in an employer sponsored retirement plan like a 401k because of the benefits of “stretch IRA” and the freedom and control that an IRA gives to the owner to have a sophisticated beneficiary designation.
$14,000 annually without gift tax, so to avoid
inheritance tax parents
this amount away to their children. However this
should be used
because it is best to use it to give shares in FLP’s
to reduce estate
rather than to fund a 529 Plan. Regarding integrated
Plan future contributions should be examined to see
how they effect
planning. This is because contributions are subject
to the annual
tax-free gift limit and it may be best for high net
worth clients to
give funds to a 529 Plan and instead give each year
$14,000 of FLP
their heirs. Anyone can gift funds for tuition
without gift tax if they
the check payable directly to the college, instead
of to a 529 Plan.
Another technique is for the parents to sell distressed assets to their kids at fire sale prices, thus reducing the parent’s estate while they are alive. The sale must be at fair market value which should be verified with an appraisal. The need for an appraisal is determined by an estate planning attorney. Another technique is for the parents to liquidate assets and loan the proceeds to the children at today’s low 4% AFR rate using an interest-only loan and then the children invest in stocks and hope to make a long run return of roughly 8 to 10%. This is estimate is based on the past performance of broad market indexes and is not guaranteed for the future. To prevent the children from being spoiled the assets should be controlled by a Trustee.