Making the Most of Overlooked Estate Planning Strategies

Effective estate planning involves more than just dividing assets; it requires a strategic approach to optimize outcomes for all involved. Several strategies, often overlooked, can significantly benefit the estate and its beneficiaries by saving on taxes, preserving assets, and ensuring wishes are honored. This article highlights a few of these strategies and provides examples of their implementation.

1. QTIP Trusts: A Balancing Act A QTIP (Qualified Terminable Interest Property) trust is a crucial tool that balances the interests of a surviving spouse and other beneficiaries, such as children from a prior marriage. It provides income to the surviving spouse during their lifetime while preserving the principle (or corpus) for the other beneficiaries. This approach ensures the surviving spouse is financially secure while also optimizing estate tax benefits for the estate.

Example: John has children from a prior marriage and wants to ensure they receive a portion of his estate. He sets up a QTIP trust, which provides income to his current spouse, Mary, during her lifetime. Upon Mary's death, the remaining assets in the trust will pass to John's children, preserving the estate tax exemption.

2. Strategic Refusals: The Qualified Disclaimer A qualified disclaimer is a strategic refusal of an inheritance by a beneficiary. This refusal allows the assets to redirect to other beneficiaries or trusts without incurring gift tax implications. By strategically disclaiming assets, a beneficiary can optimize estate distributions and potentially reduce taxes, ensuring the estate is distributed in the most tax-efficient manner possible.

Example: Sarah inherits $100,000 from her uncle. She decides to make a qualified disclaimer, redirecting the inheritance to her children. This action avoids potential gift tax that might have been incurred if she had accepted the inheritance and then gifted it to her children.

3. Maximizing Benefits with Exemption Portability Estate tax exemption portability allows a surviving spouse to utilize the unused portion of a deceased spouse's estate tax exemption. This election is essential for maximizing a couple's combined estate tax exemptions and can result in significant tax savings. Properly leveraging exemption portability ensures that the couple takes full advantage of their combined estate tax exemptions, minimizing estate tax.

Example: Tom dies when the estate tax exemption is $12.92 million. His estate is worth $3 million, and he uses $3 million of his estate tax exemption. His surviving spouse, Jane, can utilize the remaining (roughly) $10 million of Tom's exemption, in addition to her own, to minimize the estate tax at her passing.

4. Adjusting to Change with Decanting Trusts Decanting a trust involves transferring assets from an existing trust to a new trust with more favorable terms. This strategy allows for adjustments to the trust's terms to suit current needs and laws without creating a new trust. Decanting a trust offers a way to address changes in family dynamics, laws, or rectify issues in the original trust, ensuring the trust remains relevant and effective.

Example: Emma has a trust that was created 20 years ago. Since then, the tax laws have changed, and her family dynamics have evolved. Emma utilizes decanting to transfer the assets to a new trust with terms that reflect her current needs and the current tax laws.

In conclusion, estate planning is a strategic exercise that involves more than just dividing assets. Implementing often-overlooked strategies like QTIP trusts, qualified disclaimers, exemption portability, and decanting trusts can optimize the estate's tax position and ensure the best outcomes for all involved.

Ready to Optimize Your Estate Plan? Navigating these strategies alone can be challenging. Discuss your options with us and ensure your estate planning is not only efficient but also optimized for your unique circumstances.

HoganTaylor Estate Planning Services

HoganTaylor estate planning professionals leverage their tax and business advisory expertise to help individuals accomplish goals and minimize tax burden. If you have any questions about the content of this publication, or if you would like more information about HoganTaylor's Estate Planning services, please contact Dan Bomhoff, Estate Planning  Lead.

INFORMATIONAL PURPOSE ONLY. This content is for informational purposes only. This content does not constitute professional advice and should not be relied upon by you or any third party, including to operate or promote your business, secure financing or capital in any form, obtain any regulatory or governmental approvals, or otherwise be used in connection with procuring services or other benefits from any entity. Before making any decision or taking any action, you should consult with professional advisors.