Advanced Estate Planning

        The focus of advanced estate planning includes minimizing or eliminating estate taxes, planning for unique family assets (family cottage, family farm, or family business), and structuring the transfer of family wealth in a manner that both protects and supports the next generation. There are a variety of strategies available to you if your needs extend beyond foundational planning. Virginia families interested in this type of planning often establish and maintain a variety of sophisticated planning strategies, such as Qualified Personal Residence Trusts (QPRT), Irrevocable Life Insurance Trusts (ILIT), and a wide range of charitable gifting techniques to reduce Federal Estate Taxes, Gift Taxes, and Generation Skipping Transfer Taxes.

Qualified Personal Residence Trusts

        Our homes are often our most valuable assets and hence one of the largest components of our taxable estate. A Qualified Personal Residence Trust or a QPRT allows you to give away your house or vacation home at a great discount, freeze its value for estate tax purposes, and still continue to live in it. Here is how it works: You transfer the title to your house to the QPRT (usually for the benefit of your family members), reserving the right to live in the house for a specified number of years. If you live to the end of the specified period, the house (as well as any appreciation in its value since the transfer) passes to your children or other beneficiaries free of any additional estate or gift taxes. After the end of the specified period, you may continue to live in the home but you must pay rent to your family or designated beneficiary in order to avoid inclusion of the residence in your estate. This may be an added benefit as it serves to further reduce the value of your taxable estate, though the rent income does have income tax consequences for your family. If you die before the end of the period, the full value of the house will be included in your estate for estate tax purposes, though in most cases you are no worse off than you would have been had you not established a QPRT. An added benefit of the QPRT is that it also serves as an excellent asset/creditor protection vehicle since you no longer technically own the property once the trust is established and your residence is transferred to the QPRT.

Irrevocable Life Insurance Trusts

        There is a common misconception that life insurance proceeds are not subject to Federal Estate Taxes. While the proceeds are received by your loved ones free of any income taxes, they are countable as part of your taxable estate and therefore your loved ones could lose a significant amount of it to estate taxes.

An Irrevocable Life Insurance Trust (ILIT) is created specifically for the purpose of owning your life insurance policy. A properly established and administered trust holds the policy outside of your estate and keeps the proceeds from being taxable to your estate. The proceeds from the insurance policy can then be used to provide your estate with the liquidity to pay estate taxes, pay off debts, pay final expenses, and provide income to a surviving spouse or children. The ILIT will be the policy owner and beneficiary. Once your trust is established, you use your annual gift tax exclusion to make cash gifts to your trust. Your beneficiaries forgo the present gift (in lieu of the future proceeds) and the trustee uses the remaining gift to pay the premium on the life insurance policy.

There are many options available when setting up an ILIT. For example, ILITs can be structured to provide income to a surviving spouse with the remainder going to your children from a previous marriage. You can also provide for the distribution of a limited amount of the insurance proceeds over a period of time to a financially irresponsible child.

        Our firm is dedicated to helping clients make educated, informed decisions about their assets. We work with you and your team of financial advisors and CPAs to implement a highly sophisticated estate plan.