Florida Tax Planning Attorneys for Wealth Transfer

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Author: Greg S

Keeping Assets in the Family

Estate and gift taxes can take a big bite out of your estate. If you have substantial assets, we can help you minimize, and sometimes eliminate, federal estate taxes, allowing your heirs to inherit the maximum amount of tax-free money.

Regardless of the value of an estate, most people want their assets to be distributed to their own family members. With today’s high divorce and remarriage rate, making sure your money ends up in the right hands requires careful estate planning.

As Florida estate planning attorneys, we serve clients in Palm Beach, Martin, St. Lucie, Broward, Okeechobee counties and the surrounding communities. We can help you craft an estate plan best suited to your family and financial circumstances.

The following are samples of possible estate planning strategies. These are not recommendations, as we can only make recommendations after we meet with you and understand your specific assets and objectives:

Note: Effective January 1, 2024 the federal lifetime unified estate and gift tax exemption is $13.61 million per individual, $27.22 million per married couple.

Gift to Transfer Tax-Free Money & Reduce Your Taxable Estate

A program of gift-giving can help reduce the size of your taxable estate, provide financial assistance to your family, and, since you make these gifts while you’re alive, give you the pleasure of knowing you are assisting your loved ones.

An individual can give away up to $17,000 per year per recipient (effective Jan. 1, 2023) to as many recipients as desired, without incurring any gift tax or affecting the unified lifetime gift tax exemption, currently $13.61 M per individual.

For example, a single person with two children can transfer $17,000 to each child per year for a total of $34,000, and retain his $13.61 M exemption. A married couple with two children can transfer $68,000 per year ($17,000 per child per parent), and each spouse will still retain the $13.61 M exemption.

Are There Any Restrictions to Whom Gifts Can Be Made?

There are no restrictions on who you may make gifts to. In addition to your family members, you may make gifts to any individual up to $17,000 per year without affecting your gift tax exemption. These gifts are not tax-deductible for you, or income taxable to the recipient.

A person may give away in excess of $17,000 per year to any recipient if the gift is made directly to a medical provider or educational institution for that recipient’s benefit. For example, you may pay your grandchild’s annual college tuition of $40,000 without in any way impacting your unified credit, provided you write the check directly to the school, in addition to giving $17,000 to your grandchild in the same year. None of these gifts would affect your lifetime gift tax exemption.

Life Insurance Trust Can Provide Heirs Cash to Pay Estate Taxes

For estates on which estate taxes will be owed, the issue of what assets should be used to pay the taxes can be problematic. Frequently a family business is involved, which cannot be sold or mortgaged without causing great harm to the business and family members who work in it and rely upon it for their and their family’s future. If qualified plan money [ IRA, 401(k), 403(b) ] is a large portion of a decedent’s estate, liquidating these funds to pay estate taxes can create negative income tax complications and cause a major dissipation of those retirement funds.

An Irrevocable Life Insurance Trust is one solution to this quandary. The insurance can either be on the life of a single individual, or upon the second to die of a married couple (the point at which the estate tax customarily has to be paid).

The Trust is set up with a trustee(s) other than the insured. The trustee is generally an adult child, or a third party like a bank or an attorney. Properly done, gifts are made by the insured to the trustee, for the benefit of the ultimate beneficiaries (usually children or grandchildren). Those gifts are used to purchase and continue to pay for life insurance on the life of the insured.

Upon the death of the insured or insureds, the life insurance proceeds are paid to the trustee, for the benefit of the beneficiaries, free of both income tax and estate tax. Those funds are then used to pay any estate taxes due, thus avoiding the need to sell the family business, or real estate, or to cash in a qualified plan.

Inheritance Protection Trust: Keep Your Assets In Your Family and Divorce-Proof Your Children’s Inheritance

Today’s high divorce and remarriage rates make keeping assets “in the family” an increasing concern. If your child divorces, chances are you want your child and your own grandchildren—not your former in-law and the in-law’s subsequent children—to inherit your assets. A properly drafted Inheritance Trust can help ensure that your assets pass to your blood relatives, as well as potentially protect those assets from their creditors in the event your heirs encounter financial hardship.

You set up a Inheritance Trust naming your child as beneficiary and trustee of the Trust when you pass on. At that time, assets from your Trust are retitled into the Inheritance Trust. Your child then has complete access to both the principal and income. When your child dies, any unused portion of his inheritance goes to his children. (If his children are too young to manage the monies, the funds may be held in trust for them, and a trustee, usually another one of your adult children, can use the assets for the grandchildren’s health, education, maintenance and support.) If your child dies without children of his own, any unused funds are divided among your blood relatives, generally surviving children or grandchildren.

Another advantage of the Inheritance Trust is that assets passing through it, unlike those passing through a traditional Will or Trust, are automatically segregated from your child’s marital assets. This spares your child the potentially awkward situation of informing his spouse that he wishes to keep his inheritance separate from his marital funds.

SEE GRAPHIC – PASSING YOUR MONEY TO YOUR CHILDREN: TRADITIONAL METHOD vs INHERITANCE TRUST METHOD

What is a Spousal Option Trust? How Can it be Used for Estate Plan Flexibility As Tax Laws Change?

The Credit Shelter Trust allows couples with taxable estates to pass the maximum amount of tax-free money to heirs. However, it requires some extra work after the first spouse dies. The survivor needs to maintain assets in two pots: the Credit Shelter Trust and the survivor’s Trust. That involves tracking, managing, and filing income tax returns for each Trust.

The problem is that the definition of “taxable” is constantly changing. The law as of January 1, 2024, provides for an estate tax exemption of $13.61 M per individual. When a couple has a Credit Shelter Trust, the survivor is required to set up two Trusts – even if the estate tax law at that time means the estate is not taxable. It becomes a lot of bother for no benefit.

Additionally, “portability” currently exists as an option upon the death of the first to die. By filing an estate tax return upon the death of the first to die, the survivor may retain the unused portion of the decedent’s tax exemption, providing an alternative method to reduce estate tax exposure.

Fortunately, there is an alternative to all these unknowns. A Spousal Option Trust (also known as a Disclaimer Trust) addresses this problem of changing estate tax exemptions by giving the survivor the option, not the obligation, to set up two Trusts upon the death of the first spouse. If at the first death a Credit Shelter Trust is unnecessary from a tax standpoint, it need not be established. The decedent’s assets would then go directly into the survivor’s Trust.

SEE GRAPHIC – TRADITIONAL ESTATE PLAN vs SPOUSAL OPTION TRUST

Charitable Remainder Trust: Give to Charity & Reap Estate Tax Benefits

The Charitable Remainder Trust can be a useful tax-savings tool if you have significantly appreciated assets, such as stocks and real estate. A Charitable Remainder Trust may allow you to avoid paying capital gains taxes on these assets, as well as remove them from your estate and therefore reduce estate taxes.

When you place highly appreciated assets in a Charitable Remainder Trust whose ultimate beneficiary is a charity of your choice, you receive an immediate income tax deduction equal to the fair market value of the assets. Your designated charity (trustee) then sells the asset and invests the monies in income-producing investments, and you receive income for life from the Trust. When you die, your designated charity receives the principal of the Trust. Although the Trust is irrevocable, you still have the power to change or add charitable beneficiaries at any time.

We urge you to contact us to investigate the best ways to provide protection for yourself during your lifetime, and for your loved ones when you’re gone.

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