ELITE ADVISOR BEST PRACTICES

Do Your Planning Now

Top 10 reasons to move all necessary assets out of your clients’ taxable estates ASAP

By Tim Voorhees

Key Takeaways:

  • Clients can ”eat better“ by minimizing taxes, but they can also ”sleep better“ knowing that irrevocable trusts protect assets from lawsuits.
  • Popular estate planning tools such as IDITs, QPRTs, GRATs and LLCs may be limited by lawmakers in the future. Put these tools in place now to reduce taxes. They’ll likely be protected by grandfather provisions if Congress later changes the rules.
  • ”Purpose statements“ and ”family meetings“ can be very helpful for preparing heirs and beneficiaries to steward the assets they’re slated to receive.


We learned on January 2, more than a day after the gift and estate exemptions returned to $1 million, that both of these exemptions are increasing to $5 million (plus an extra amount for inflation). This was a surprise in light of the strong desire of policy makers to keep the gift exemption tax low and to discourage wealthy people from moving money to taxpayers in lower tax brackets.

In fact, if you did not encourage clients to move all necessary assets out of their taxable estates last year, you should consider doing so now.

Top 10 reasons to consider moving assets

For many reasons it made sense to move assets to irrevocable trusts last year even while the law was uncertain. And here are 10 reasons to consider doing so now:

  1. Clients can grow assets outside taxable estates. Under the new tax law, clients can avoid a 40 percent estate tax by moving assets to irrevocable trusts.

  2. Clients can lock in this year’s $5 million+ exemption. Because Congress normally grandfathers tax planning made under the current tax laws, gifts sheltered with the current exemption should be secure in case future tax increases lower the exemption again.

  3. Planning tools can be secure even if Congress follows through on threats to curtail the benefits of estate planning instruments. Congress has talked often about raising revenue by minimizing the use of common estate planning tools such as IDITs, QPRTs, GRATs, LLCs and others discussed in the book available at www.ZeroTaxCounsel.com. If you put these tools in place now to reduce taxes, they should be protected by grandfather provisions if Congress later changes the tools.

  4. The irrevocable trust planning provides asset protection benefits. Clients can ”eat better“ by minimizing taxes, but they can also ”sleep better“ knowing that irrevocable trusts protect assets from lawsuits.

  5. Irrevocable trust planning encourages wise life planning. Trusts need purpose statements. Crafting purpose statements for trusts often stimulates discussion about the purposes and mission of people who fund the trust and benefit from the trust assets. Studies show that people with clear statements of purpose often achieve much greater success. (For information about the power of purpose, download the free book from www.Legacies.info.)

  6. Irrevocable trust planning includes family legacy benefits. Managing assets in trusts often fosters commitment to family meetings. Such meetings can prepare children and grandchildren to steward assets wisely while they progressively assume more management, control and ownership responsibilities.

  7. Estate planning with irrevocable trusts can now be more powerful when combined with income tax planning. Under the new tax laws, clients receive greater benefits when sheltering income from taxes. Many of the most powerful tools for tax-advantaged income can take advantage of the same types of irrevocable trusts used for estate planning. For more information about income tax planning instruments that generate secure lifetime income, see www.Telinsur.com.

  8. Planning now starts the statute of limitations running. After clients make gifts, the IRS has three years to challenge the gifts. While the risk is usually very small, nobody wants to live with this risk during retirement years. Clients should make gifts now while they have an able team of advisers who can implement and defend the transactions.

  9. Planning now can build more wealth tax-efficiently in the future. Many of the more powerful tax-deferred vehicles generate the most attractive returns if capital accumulates tax-free for at least 12 to 15 years.

  10. Clients should act now while they are still of sound mind. Any one of us could be gone tomorrow. The possibility of new tax law changes should motivate us all to complete planning that might otherwise be left uncompleted for too long. This can give you and your beneficiaries great peace of mind.

Conclusion

While there is still uncertainty about the new tax laws, the growing impact of taxes is certain. Fortunately, American public policy continues to encourage the use of many tools for tax-efficient growth of wealth. For the 10 reasons above, clients should all re-evaluate financial and estate plans in light of the new opportunities created by the 2013 tax legislation.


About the Author

Tim Voorhees, JD, MBA, is an estate planning lawyer and investment advisor based in Irvine, California. He is the president of the Registered Investment Advisory firm described at Voorhees Family Office Services.com and the managing partner of the tax law firm described at www.MVMLawyers.com Feel free to email Tim at tim@vfos.com.

Readers of this document should consult with independent advisors regarding the tax, accounting and legal implications of the proposed strategies before any strategy is implemented. Nothing in this presentation is intended to offer securities or investment advice. Tax and regulatory rules affecting strategies in this document may change often and have varying interpretations. To ensure compliance with requirements imposed by the IRS under Circular 230, we inform you that any U.S. federal tax advice contained in this communication is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties under the Internal Revenue Code or for promoting, marketing or recommending to another party any matters addressed herein.