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Many of our clients are business owners or real estate owners who grew their business or real estate holdings from nothing to valuable enough to subject their family to significant estate tax.
When you die, any amount you own less than the year of death exemption amount is not subject to estate tax. Any amount above the year of death exemption going to anyone other than a spouse or charity will be taxed at 40%. This is the foundation of estate tax.
We help our clients implement various trust planning strategies during their lifetime to maximize wealth for themselves and future generations.
The BDIT should be one of the most important tools in the forward-thinking estate planner’s tool box. From a wealth transfer and asset protection perspective, no other planning technique offers as much opportunity, flexibility, and protection from taxes and creditors as a BDIT.
We use a BDIT for two types of clients: clients starting new business or clients who have an existing business that is appreciating rapidly.
For clients starting a new business, a BDIT can be the originating owner and the business will never be subject to estate tax. The client stays in control of the business and is the beneficiary of the trust.
For clients who have an existing business, an owner can sell their interest to a BDIT in return for a promissory note (which does not trigger a taxable event). While the promissory note would still be subject to estate tax, the appreciating business would not. The original owner remains the beneficiary and stays in control of the business.
Some attorneys call it the “Pipe Dream Trust” because it has it all: control, beneficial enjoyment, power to amend, creditor protection and tax savings.
A Spousal Lifetime Access Trust is a sophisticated asset protection and wealth transfer planning tool allowing you to move a valuable asset and its future growth outside of your estate so it will not be subject to estate tax.
If you are in a committed marriage and own significant wealth in a business or real estate, the earlier you implement a SLAT, the more beneficial it may be for your financial legacy.
Internal Revenue Section 1202 provides a large capital gain tax exclusion for certain companies upon their sale. This is commonly referred to as the QSBS exclusion. Each taxpayer holding QSBS is entitled to separately take advantage of this exclusion.
QSBS may be gifted to an unlimited number of taxpayers, each of whom will have the taxpayer’s own exclusion. Oftentimes we prepare trusts that can serve as separate QSBS taxpayers and the transfer does not restart the five-year holding period (i.e. purchase date, vesting date, 83(b) election, or exercise date). This strategy of stacking the QSBS exclusion by gifting to non-grantor trusts can significantly save capital gains tax for owners of QSBS. This strategy is compounded with significant estate tax savings when the trust is also drafted as a dynasty trust.
If you are facing a large capital gains tax in the future when your qualified small business sells, consider stacking the exclusion for significant tax savings.
A GRAT is created by transferring one or more high-yield assets into an irrevocable trust and retaining the right to an annuity interest for a term of years. When the term ends, assets remaining in the trust that have grown in excess of the IRS’ 7520 rate may be passed to the named remainder beneficiaries (i.e., children, special loved ones) without being subject to estate or gift tax.
Clients rarely come to our office asking for a GRAT. Instead, we educate our clients about a GRAT and help them implement this sophisticated estate tax savings strategy. At the end of the term, we then have happy clients and happy loved ones who benefit tax free.
You create a CLAT by transferring cash or other assets to an irrevocable trust. A charity receives fixed annuity payments from the trust for several years. At the end of the term, assets in the trust (including appreciation that occurred over the term of years) are transferred to the non-charitable remainder beneficiaries you specify (i.e., child or someone you care about).
You can set up a CLAT so that you receive an immediate and sizeable income tax deduction. Many of our clients fund the CLAT during a year when they experience a significant taxable event (i.e., sale of a business).
Many of our clients own rental properties, ranches, beach homes, lake homes, mountain homes, planes, and boats that are owned by an entity for asset protection purposes. Texas has favorable laws to protect assets using limited liability companies and limited partnerships.
If structured properly, Texas business entities can insulate the owner’s assets (i.e. brokerage account) from liabilities that stem from assets of the entity (i.e., rental real estate). In addition, assets inside a Texas LLCs or LPs are protected from creditors of the owner (i.e. car accident or home owner accident).
By creating silos for each asset, if something terrible happens unexpectedly in one silo, the others are protected.
Asset Protection Trusts can provide a high degree of asset protection for Texas residents.
Do you have any assets that could be taken away if you got in a law suit? What would the impact be to you and your family if a judgment was declared against you?
An asset protection trust is where the assets in the trust are protected by law from the beneficiary’s creditors. Texas law does not allow someone to set up a trust for their own benefit and the assets in that trust protected from the trust maker’s creditors. However, other states do have laws allowing this type of asset protection trust.
For an Asset Protection Trust to work, assets need to be transferred before a potential creditor issue arises.
Texas residents can benefit from out of state Asset Protection Trust laws. We work collaboratively with the best asset protection attorneys and professional trustees in the country to create and administer trusts that protect our Texas clients’ assets.
Most sophisticated estate tax strategies require filing IRS Form 709 gift tax return. We are a law firm and do not prepare income tax returns; however, we are skilled at preparing gift tax returns. We work collaboratively with our clients’ CPA to ensure the filings are complete and accurate.