Category Archives: AALU

Defined Value Clauses: An Important Tool for Turbulent Times

 WR marketplace 

“As the 2020 presidential election approaches, uncertainty continues regarding the potential for tax legislation and changing market conditions, causing many to consider using current transfer tax exemptions with gifts before year-end.  Individuals planning to transfer hard-to-value assets may wish to consider using a gift agreement with a defined value clause to shield against unwanted gift tax consequences.”

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Case Study: The Reciprocal Trust Doctrine – A Trap for the Unwary

“The reciprocal trust doctrine can unwind legacy planning that involves mutually beneficial trusts; however, a careful and deliberate approach can shield transfers against application of the doctrine. In 2020, legacy planning for spouses and other related parties has focused largely on full use of their gift and estate tax exemptions due to the risk of prospective changes in the amounts of such exemptions. This type of planning often involves implementing mutually beneficial irrevocable trusts so that each party continues to have access to resources after the party gives assets away (e.g., spouses who each establish a spousal lifetime access trust (“SLAT”) for the benefit of the other spouse). However, such trusts can sometimes contravene the reciprocal trust doctrine, which applies to interrelated trusts that have substantially identical terms and are part of the same transaction or plan. While the facts of each case are unique, best practices indicate that related grantors vary several factors among the respective trust agreements to reduce the risk of reciprocal trust treatment.”

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Highlights from the 54th Annual Heckerling Institute on Estate Planning

“Modern strategies for legacy planning with today’s clients were the focus of discussions at the 2020 Heckerling Institute on Estate Planning.  The 54th Annual Heckerling Institute on Estate Planning (the “Institute”) focused on the ongoing effects of the Tax Cuts and Jobs Act (“TCJA”), including: (1) legal and regulatory developments concerning life insurance; (2) benefits and burdens of grantor and non-grantor trust status; (3) planning considerations for migratory clients; (4) state income taxation; (5) implications of the SECURE Act; and (6) planning for the generation-skipping transfer (“GST”) tax on nonexempt trusts.”

To read the full report, click here.

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AALU: Legacy Management: A Fresh Look at an Age-Old Business

While traditional estate plans may cost less, the value added with a comprehensive legacy management approach generally exceeds its marginally higher expense. Proactive management supported by a cooperative multi-disciplinary team helps families see what is on the horizon and efficiently navigate changes. Professional services rendered to implement and maintain a plan also eliminate many costly issues that routinely emerge when clients use a less sophisticated or “DIY” approach.

To read the full report, click here.

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AALU: Post-Mortem Liquidity Planning: A Fiduciary’s (Limited) Toolbox

“In the absence of life insurance, options for fiduciaries to generate needed liquidity for estate taxes and expenses may be limited, creating additional hurdles for estate administration and post-mortem planning.” 

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The §6166 Estate Tax Deferral for Closely Held Business: Q&A’s

“In business succession planning, a §6166 deferral election may provide a powerful post-mortem planning tool to help minimize the initial strain on the estate and prevent a forced sale of the estate’s business interest. However, the election’s complex administrative and compliance requirements and the potential for payment acceleration make it an insufficient substitute for lifetime succession planning.”

To read the full report, click here. 

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Watch Your Step – Fiduciary Pitfalls for Trustees of Irrevocable Life Insurance Trusts


“Sample cases targeting trustees vividly illustrate unique fiduciary challenges in terms of trust administration and asset management, including for irrevocable life insurance trusts (“ILITs”).  The growing complexity of life insurance products and the potential for increased gifts in the next several years can make ILIT administration far more complicated than anticipated, particularly for non-professional trustees.”

To read the full report, click here.

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Buy-Sell Basics – A Brief Introduction

“Buy-sell arrangements (“BSAs”) address how the business or other business owners can “buy-out” an owner’s interests after a specified triggering event, such as death.  To be effective, the terms and structure of a BSA must be tailored to the unique needs of each business and business owner; there is no “one size fits all” form.  BSAs also should take a comprehensive approach to buy-outs, addressing not just an owner’s death, but also disability, divorce, and bankruptcy, among other events.  Business valuation and buy-out funding are also critical to a BSA’s success.”

To read the full report, click here.

 

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Out with the Old, In with the New – Revitalizing or Unwinding Existing ILITs

“In legacy and life insurance planning, using ILITs to acquire life insurance was almost automatic. Now, with lower federal estate tax rates and higher exemptions, some clients may feel saddled with old ILITs that no longer match their goals or provide the intended tax benefits, even though retention of the life insurance makes financial and investment sense.” 

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Spousal Lifetime Access Trusts (SLATs) and Divorce – What You Don’t Know…

“Per Notice 2018-37, the IRS plans to issue future guidance that could help clarify the income taxation of SLATs, post-divorce.  Regardless, clients and advisors should be proactive in addressing these issues when planning with SLATs.  New SLATs should incorporate trust provisions that specifically address spousal trust rights in the event of a divorce.  Existing SLATs should be reviewed to confirm the impact of divorce, with consideration given to addressing spousal trust rights in a post-nuptial agreement if the SLAT fails to do so. Clients with existing SLATs that are contemplating divorce should review the SLAT’s tax ramifications as part of their negotiations, well before any final settlement, and consult with a tax advisor in collaboration with the divorce attorney to coordinate the technical tax aspects of any settlement.”

To read the full report, click here.

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