In our last few posts, we discussed some methods and tools that can be used by individuals that want to pass their wealth on to others while minimizing tax consequences and protecting the value of their assets. In this post, we will conclude that discussion by talking about a few other estate planning and asset protection strategies.
One option that we have mentioned briefly before are grantor-retained annuity trusts (GRATs) which are trusts created by an individual and funded with assets that are likely to appreciate over time. The trust is created for a number of years and over that time the trust works like an annuity paying the grantor (the person that created the trust) a specified amount. At the end of predetermined number of years, the assets remaining in the trust, and any appreciation in value, is distributed to the grantor’s named beneficiaries.
Another option would be to form a family limited partnership or a limited liability company (LLC). Essentially, the plan would be to set up a company with groups of voting and non-voting shares of the company. The individual with non-voting shares could gift those shares to his or her children or grandchildren and may not have to pay gift taxes on those depending on how they are valued for gift tax purposes.
One final tool you may be able to use to ensure that your assets are passed on to your heirs is what is called a dynasty trust. Such a trust can be funded through a gift from you and your spouse and then be set up to be distributed to children, grandchildren and so on. Depending on how you set it up and how you fund it, this trust may avoid gift and other taxes for generations as long as the assets remain in the trust. It may depend on where you set it up, but the trust could last a certain number of years, or it may go on forever.
Of course, there are countless ways in which of all of these strategies and estate planning tools can be used. Moreover, using them can be extraordinarily complicated. Since poor estate planning can have costly consequences, you should seek out the advice of an attorney before putting any of these plans into action.
Source: The Spectrum, How to smartly give away assets, 11/14/10