Jeffrey D. Renner

In light of changes to the federal estate tax laws, we worked with a couple to update their estate planning documents to allow the tax plan created under the last wills or revocable trusts to adapt to ever-changing estate tax laws. Under the new plan, upon the death of the first spouse, all of the deceased spouse’s assets will be transferred to a marital trust (e.g., a QTIP Trust). Elections will be made on an estate tax return to (1) qualify the marital trust for the estate tax marital deduction and (2) allow the deceased spousal unused exclusion amount to be transferred to the surviving spouse. The deceased spouse’s generation skipping transfer (GST) tax exemption will be allocated to the marital trust. Upon the death of the surviving spouse, the assets of the marital trust will receive a step-up in tax basis and the surviving spouse’s applicable estate tax exclusion (the basic exclusion plus the deceased spousal unused exclusion amount) will minimize or eliminate estate taxes. Because GST tax exemption was allocated to the marital trust, the assets of the marital trust can be held in dynasty trusts for the couple’s descendants without triggering a GST tax.

To mitigate the capital gains taxes for a client on the sale of stock that had significant built up gain we created a charitable remainder trust (CRT) for the client. The client transferred the stock to the CRT and received an income tax deduction (and gift tax deduction) on the transfer. The trustee of the CRT sold the stock and, because the CRT is tax-exempt, the capital gains taxes were not immediately due in the year of the sale. Instead, the capital gains is slowly distributed to the client with each annual payment the CRT owes to the client.

To minimize the value of a gift a client wanted to make to his children, we established a grantor retained annuity trust (GRAT). We structured the term of years of and annuity payments from the GRAT so that the value of the remainder interest of the GRAT was near zero. The appreciation of the assets inside the GRAT have significantly exceeded the 7520 rate in effect at the time the GRAT was established. We anticipate that after the GRAT terms end, the children will receive approximately $250,000 each, effectively allowing the client to make a significant gift to his children without making a taxable gift.

To take advantage of the currently high federal estate tax exclusions, we had a married couple establish spousal lifetime access trusts (SLATs). Each spouse made gifts of assets up to their remaining estate tax exclusion amounts. The assets in the SLATs will be excluded from each spouse’s estates for State estate tax purposes because the State has no gift tax. The appreciation of the assets will be excluded from both spouse’s estates for federal estate tax purposes and if the federal estate tax exclusions go down, the clients will have made tax-free gifts of the difference between the federal estate tax exclusion when the gifts were made and the federal estate tax exclusion when the client dies. GST tax exemption were also allocated to each of the SLATs to allow the trusts to continue from one generation to the next without triggering a transfer tax. Because each spouse is a beneficiary of one of the SLATs, the gifted assets have not left the marital home.