Five Levels of Estate Planning | Finance information

The five levels of estate planning is a systematic approach for explaining estate planning in a way that you can easily follow. . Which of the five levels you need to complete is based on your objectives and circumstances Particular

Level One: The Basic Plan

The situation for level one is planning that you have no wishes or living trust in place, or your existing will or living trust is outdated or inadequate. The objectives for this type of planning are to:

o reduce or eliminate estate taxes;
o avoid the cost, delays and publicity associated with probate in the event of death or incapacity, and
o protect heirs from their inability, their disability, their creditors and their predators, including ex-spouses.

To accomplish these objectives, you would use a pour-over will, a revocable living trust that allocates a married person?s estate between a credit shelter trust and a marital trust, general powers of attorney for financial matters and durable powers of attorney for health care and living wills

Level Two. The Irrevocable Life Insurance Trust (ILIT)

The situation for level two is that your estate planning is projected to be greater than the estate-tax exemption. While there is a lapse in the present estate and generation-skipping transfer taxes, it?s likely that Congress will reinstate both taxes (perhaps even retroactively) sometime this year. If not, on January 1, 2011, the estate tax exemption (which was $ 3.5 in million in 2009) becomes $ 1 million, and the top estate tax rate (which was 45% in 2009) becomes 55%. In any event, you can make cash gifts to ILIT to using your $ 13,000 / $ 26,000 annual gift-tax exclusion per beneficiary

Level Three. Family Limited Partnerships

The situation for three level planning is that you have a projected estate-tax liability that Exceeds the life insurance purchased at level two. If your $ 1 million gift-tax exemption ($ 2 million for married couples) is used to make lifetime gifts, the gifted property and all future appreciation and income on that property are removed from your estate.

More people would be willing to make gifts to their children if they could continue to manage the gifted property. A family limited partnership (FLP) or a family limited liability company (FLLC) can play a valuable role in this situation. Typically you would be the general partner or manager and in that capacity, continue to manage the FLP or FLLC?s assets. You can even take a reasonable management fee for your services as the general partner or manager. Moreover, by gifting FLP or FLLC interests to at ILIT, the FLP or FLLC?s income can be used to pay premiums, THEREBY freeing up your $ 13,000 / $ 26,000 annual gift-tax exclusion for other types of gifts.

Level Four: Qualified Personal Residence Grantor Retained Annuity Trusts and Trusts

The situation for level four additional planning is the need to reduce your estate after your $ 1 million / $ 2 million gift-tax exemption has been used . Although paying taxes is less toxic than paying expensive estate taxes, most people do not want to pay taxes poison. There are several techniques to make substantial gifts to children and grandchildren without paying significant taxes poison.

One technique is a qualified personal residence trust (QPRT). A QPRT Allows you to transfer a residence or vacation home to a trust for the benefit of your children, while retaining the right to use the residence for a term of years. By retaining the right to occupy the residence, the value of the remainder interest is reduced, along with the taxable gift. Another technique is a grantor retained annuity (GRAT). A GRAT is similar to a QPRT. The typical GRAT is funded with income-producing property as subchapter S stock or seeking FLP or FLLC interests. The GRAT pays you a fixed annuity for a specified term of years. Because of the retained annuity, the gift to the remaindermen (your children) is Substantially Less Than the current value of the property. Both can be designed QPRTs and grats with terms long enough to reduce the value of the remainder interest passing to your children or even to a nominal amount to zero. However, if you do not survive the stated term, the property is included in your estate. The Zero-Tax Estate

plan

: Therefore, it is recommended that ILIT to be funded as a ?hedge? against your death prior to the end of the stated term

Level Five. Level five is planning a desire to ?disinherit? the IRS. The strategy combines gifts of life insurance with gifts to charity. For example, take a married couple, both age 55, with a $ 20 million estate. Assume that there is neither growth nor depletion of the assets and that both spouses in a year when the estate-tax exemption is $ 3.5 million, and the top estate-tax rate is 45%.

With the typical credit shelter marital trust, when the first spouse, this $ 3.5 million is allocated to the credit shelter trust and $ 16.5 million to the marital trust. No federal estate tax is due. However, at the surviving spouse?s death, the estate tax due is $ 5.85 million. The net result is that the children inherit only $ 14.15 million. With the zero estate-tax plan, the ILIT (with generation-skipping provisions) is funded with a $ 13 million second-to-die life insurance policy. These gifts reduce the estate value to $ 18 million. In addition, the couple?s living trusts each leave $ 3.5 million (the amount exempt from estate taxes) to their children upon the surviving spouse?s death. The balance of their estate ($ 11 million) passes to a public charity or private foundation-estate-tax free. To summarize, the zero-estate tax plan delivers $ 20 million (ie, $ 13 million from the ILIT and $ 7 million from the living trusts) to the children instead of $ million 14:15; Receives $ 11 million the charity instead of nothing; and the IRS Receives nothing, instead of $ 5.85 million.

In summary, with some advanced planning, it is possible to reduce estate taxes, avoid probate, set forth your wishes, and protect your heirs from creditors, ex-spouses and estate taxes.

TO THE EXTENT THIS ARTICLE CONTAINS TAX MATTERS, IT IS NOT INTENDED OR WRITTEN TO BE USED AND CAN NOT BE USED BY A taxpayer FOR THE PURPOSE OF AVOIDING PENALTIES THAT MAY BE IMPOSED ON THE taxpayer, ACCORDING TO CIRCULAR 230th

id=?article-resource?> Julius H. Giarmarco, JD, LL.M, is the Chair of the Estate Planning Group of Giarmarco, Mullins & Horton, PC, Troy, Michigan.

http://www.disinherit-irs.com

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