Category Archives: Tax Planning

The Washington Report: – Wealth Transfer Edition

“The close of 2024 is the ideal time to initiate planning to maximize the remaining fruit of the TCJA, while beginning to position for a new, but familiar, landscape following the potential sunset. These approaches should work well regardless of the new tax environment. Clients looking for areas of impact should focus on (1) Roth conversions; (2) optimizing charitable deductions; and (3) acquiring life insurance.”

To read the full report click here.

“High-end business partnerships like hedge funds and wealthy individuals such as real estate investors have inappropriately used labyrinthine structures to shield tens of billions of dollars from taxation, Treasury Department officials said Monday as they vowed to crack down on the practice. They announced several steps to address a tax planning strategy known as basis shifting, in which complex business partnerships can move assets from one entity to another on paper for no reason other than to avoid taxes.”

The Washington Post article which can be found by clicking here.

The Washington Report: – Wealth Transfer Edition

“Taxpayers should exercise caution in implementing ING trusts, particularly in light of California’s new law, which is effective retroactively.  While the ING trust remains a viable wealth preservation strategy in many states, it is unclear how long this will continue.  Taxpayers who implement this strategy are well advised to craft an exit strategy as well.”

Click here to read the full report.

Robert W. Finnegan has an excellent article in the current issue of Trusts & Estates (April, 2023) entitled, “The GRAT Enhancement Strategy.”

From the article:

• Grantor retained annuity trusts (GRATs) have been a great wealth transfer success story…the shortcoming of successful GRATs is that their assets will be included in the children’s taxable estates.
• With the GRAT enhancement strategy, the GRAT remainder makes a split dollar loan to a dynasty trust to purchase life insurance, moving appreciation of GRAT assets via the policy death benefit to the dynasty trust.

Finnegan provides a robust and detailed Case Study illustrating the benefits of this planning and concludes with “The GRAT enhancement strategy is a powerful wealth transfer tool in and of itself.  It’s applicable to GRATs, staged distribution trusts and any trust in which the assets have been removed from the clients’ estates but will be taxed in the children’s estates.  Clients may be more receptive to additional planning if they can minimize their involvement and expenses and use assets that have already been transferred.”

I highly recommend this article for your review and consideration.

The GRAT Enhancement Strategy – Trust & Estates – 3.20.23

Many ultra-high net worth clients used all of their available gift/estate and GST exemptions in 2020 or 2021.  For an individual, the exemption increased by $120,000 in 2021, $360,000 in 2022 and is estimated to increase by $860,000 in in 2023.  We can make assumptions for the increases in 2024 and 2025.  What would it look like if we used the increases to fund additional life insurance.
Click here to find out.

“Rising interest rates, degrading asset valuations, and future legislative uncertainty coupled with high wealth transfer tax exemptions mean it’s a great time to revisit installment sales and similar  transactions using grantor trusts.”

To read the full report, click here.

“The IRS, clearly interested in intergenerational private split-dollar, attempted to secure a third victory. After Morrissette and Cahill, it looked like intergenerational split-dollar was trending the way of the dinosaurs. Then in Estate of Marion Levine, the Tax Court not only resurrected intergenerational split-dollar life insurance planning, but it also offered a roadmap for successfully structuring traditional private split-dollar plans as well.”

Click here to see the full report.

“The “step transaction” doctrine is alive and well. In the foot-race to beat potential tax law changes, families often miss the forest from the trees. The economic realities and entity formalities must be respected in the execution of a gift transaction….On November 10, 2021, the Tax Court rendered its decision in the case of Smaldino v. Commissioner, which involved a purported gift of LLC interests by Mr. Smaldino to his wife, followed by a purported gift of the same LLC interests, the very next day, from Mrs. Smaldino to a dynasty trust for the sole benefit of Mr. Smaldino’s children from a prior marriage. The Court found a series of ignored formalities, and that as a practical matter there was never a time when Mrs. Smaldino would have been able to effectively exercise any ownership rights with respect to the LLC interests “given” to her. The Court held that Mr. Smaldino never effectively transferred any LLC interest to Mrs. Smaldino, and consequently the dynasty trust received its entire LLC interest from Mr. Smaldino, creating a taxable event.”

To read the full report, click here.

There is an adage in the medical field that applies to planning for insurance trusts right now, namely: “First do no harm”.  What is particularly difficult for estate and tax practitioners today is they are being asked to plan for previously proposed legislation that, while currently out of the legislative debate, might resurface and pass in the future. Given this situation, what can we do to position our clients so that we are helping them in the event that the now shelved legislation reenters the debate and is passed, while simultaneously not hurting them if the laws do not change?

To read the full report, click here.

What You Know:  We Just Dodged the Defective Grantor Trust Bullet (or did we?)

What You May Not Know:  It Is Still Important to Consider Hedging Re-Introduction of DGT Provisions

Please click here to see three planning/drafting scenarios to consider.