Posts Tagged: Financial 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.

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

“Life insurance continues to play a vital role in legacy planning because of its unique value proposition – a source of income tax efficient liquidity, efficient wealth transfer on a multi-generational basis, a mortality hedge, a non-correlated asset class, and strong internal rates of return relative to the current stock market. Nonetheless, advisors should evaluate how higher rates and a volatile market may impact the performance of both new and existing life insurance funding approaches.”

Click here to read the full report.

“For many clients, especially public company executives, retirement plans can constitute a significant portion of their wealth. Determining the proper beneficiary for a client’s retirement plans is an integral part of their overall legacy plan. The identity of the selected beneficiary (e.g., spouse, descendants, trust, charity) can greatly affect the income tax impact and thus a family’s lasting legacy.”

To read the full report, click here.

“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.

2021 was a strange and challenging year in the estate and tax planning field, particularly life insurance….In the rush to address and mitigate potential consequences before they came into existence, practitioners, advisors, and clients all made decisions and took actions which, in retrospect, may not have been most advisable, were just plain mistakes, or failed to plan for the problems that these actions had potential to cause in the future, regardless of whether any of the concerning factors came to fruition. This article describes many of these “mistakes” which occurred due to rushed planning and may serve as a warning if we are (and we will be) faced with similar situations in the future.

To see 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.

BREAKING NEWS from Finseca:

This morning, President Biden delayed his trip to see the Pope to meet with Congressional Democrats about moving forward on the Bipartisan Infrastructure bill (BIF) and on the reconciliation bill (Build Back Better plan, or BBB). In concert with that meeting, the White House released two documents (below) explaining the current state of play on the reconciliation package.

We view this as an offer, not a conclusion. These documents are focused on the big picture items. They leave out many important details. There are other items not covered here that key Democrats have said must be addressed in a final deal (i.e. SALT).

Here are the things we are watching closely:

• Grantor Trusts. We do not read their absence from this document as a guarantee that they are off the table.
• Millionaires Surtax. To what definition of income is this being applied?
• 199A. While this document is silent on 199A adjustments, it does reference expansion of the Net Investment Income Tax. The House bill expanded that to cover active passthrough income, a small business tax increase.
• Estate Tax Exemptions Expiration. Not addressed in the announced framework.

Again, this is a very fluid situation. Please don’t hesitate to reach out with questions.

Armstrong Robinson
Chief Advocacy Officer, Finseca

An interesting article by Laura Saunders for the Wall Street Journal on July 2, 2021.

“Large Roth IRAs owned by the superrich are in the tax spotlight now, and all savers should consider the implications for their own retirement accounts….The story [ProPublica] claimed some wealthy Americans have multimillion- or even billion-dollar, tax-advantaged retirement-savings accounts. The largest one cited was a Roth IRA with $5 billion in assets (as of 2019) belonging to PayPal founder and investor Peter Thiel.”

To read the full article, click here.