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5 Estate Planning Strategies to Consider

Brooke Boone Kelly, CFP®, MACC, Wealth Management Advisor | Cole Hansen, CFA, CFP®, Wealth Management Advisor | April 22, 2021


Benjamin Franklin once said, “In this world, nothing is certain except death and taxes.”

Given the recent shift in presidential power, there has been a renewed focus around potential tax and estate law changes under the Biden Administration. Specific to estates, there is a proposal for the estate exclusion amount to drop from the current record high of $11.7M/person to as low as $5M or $3.5M/person and the amount over these thresholds to be taxed at 45% versus the current 40% rate. In preparation for these potential changes on the horizon, the best first step is to complete a financial evaluation with Weatherly to approximate future net worth and gifting capabilities within a record-low interest rate environment. If you have a good nest egg to support your needs, there are a few estate planning tactics to consider. In this blog post we outline “The What” and “The How” of some gifting and estate planning strategies to proactively discuss with your team of professionals.

1) Annual Gifting, 529s and Forward Gifting

The What – Annual gifting to the next generation or other family members may be a tax savvy way to pass assets to the next generation while also lowering your overall estate value.  For 2021 tax year, the gift tax annual exclusion amount is $15,000 per person. The IRS will not require a gift tax return to be filed and the gift will not count against the estate exclusion amount, which is currently set at $11.7M/person. Please reference our 2021 Key Financial Data Chart for further details.

The How – A parent or grandparent who is above the estate exclusion amount and wants to help the next generation save for education, may want to consider a forward gift via a 529 account. As it currently stands, in a given year the IRS will allow an individual to make a forward lump-sum gift equal to five times the annual gift exclusion, or $75,000/person ($150,000/married couple), to a 529 account. If no other gifts are made to the 529 account beneficiary over the next 5 years and you make the 5-year election, it will not count against your estate exclusion amount. Once the funds are in the 529 account, they can be invested, grow tax free and are not taxable at withdrawal if they are used for eligible education expenses.

Please reference the following link for additional information and examples on forward gifting to 529 accounts:

2) Intra Family Loans

The What – Intra-Family loans are agreements between family members to access capital with benefits that may not be available in an institutional relationship. If structured properly, the loan can be advantageous to both parties – the lender can transfer wealth without making an outright gift and the borrower can make smaller interest payments, skip tedious applications, and obtain flexible repayment structures. Loan interest rates must be set at or above the AFR (applicable federal rate) via the IRS website, which is updated monthly.

The How – A parent or grandparent can enter an agreement with a future beneficiary of assets when they are buying a home or starting a business. A written contract is outlined between the parties, with potentially attractive terms for the beneficiary, for example: interest-only payments, lower than market interest rates, or loan forgiveness up to the annual gift exclusion. The lender transfers these dollars out of their estate without tampering with their estate exclusion. Please check with your Advisor to ensure that the signed promissory note meets the IRS requirements for an intra-family loan.

Please reference the following link for additional information and examples on intra-family loans that may help your loved ones:

3) Family Limited Partnerships

The What –  A family limited partnership (FLP) is an entity created by family members to run a commercial project, start a venture, or hold assets. A general partner (GP) owns the largest share of the business and is therefore controls the management of the FLP, similar to a trustee. There are also limited partners with some relation to the GP that own shares and have no management responsibilities. FLP interests can be gifted or sold to members of the family via share ownership so that any growth or revenue from the FLP is no longer included in the original depositor’s estate.

The How – A couple that has amassed a significant net worth can create an FLP and name themselves as general partners with their revocable (living) trust as the sole limited partner. Real estate or securities can be held in the FLP with limited partner shares gifted to beneficiaries on an annual basis at a value near the annual gift exclusion amount. Minority or marketability discounts may apply to limit share valuations. The couple maintains control as general partners, but limited partners will receive the benefit of future income and asset growth typically at a lower tax rate as the investments appreciate and return capital. The FLP can also set stipulations to protect against mismanagement.

Please reference the link below for additional information and insight to how and why a Family Limited Partnership may fit your family’s needs:

4) Outright Gifts to Trusts

The What – A revocable (living) trust is a useful tool for those wishing to avoid probate, provide credit protection for heirs, outline distribution wishes, and maintain the ability to amend their trust. The owner of the revocable trust pays the taxes on assets held within the trust.

The How – While many clients have an active revocable trust, their next generation beneficiaries may not.  Beneficiary heirs can establish their own revocable trusts and serve as grantor and trustee, and the trust can be for their benefit. The parents or grandparents can help cover estate attorney expenditures to establish the next gen trust and then fund the new trust with large gifts, most often times over the current annual gift exclusion.  The benefits are to both parties.  The recipient of the gift is involved in his or her own critical estate planning.  The parents or grandparents remove the future appreciation of the asset from their estate and the amount gifted over the annual gift exclusion goes against their estate exclusion.

5) Irrevocable Trusts

The What- An irrevocable trust is a vehicle that can be used to remove assets from the grantor’s taxable estate. The grantor creates the trust and designates another individual or corporation as independent trustee. Once the trust is created, it typically cannot be revoked, amended, or terminated. These vehicles are usually appropriate when the grantor can relinquish control of the assets, does not need the assets during his or her lifetime and does not plan to change the beneficiary designation(s) of the trust.

The How- A high net worth couple with assets over the estate exclusion often have life insurance policies that may not be needed during their lifetimes, but rather needed by their beneficiaries for taxes, estate fees or inheritance at their passing. If structured properly, an Irrevocable Life Insurance Trust (ILIT) enables individuals to exclude a life insurance death benefit from their taxable estate at their passing. Essentially, the insured individual or grantor of the ILIT, transfers the life insurance policy ownership from the grantor to the ILIT. The beneficiary – whether it be a spouse or child – is the individual(s) listed in the ILIT document. The grantor can still pay the policy premiums via annual gift directly to the ILIT and a Crummey Letter stating a gift had been made would be provided to the beneficiary. Assuming the grantor makes no other gifts to the ILIT beneficiary for the year and the premium payment, or gift, is below the annual gift exclusion amount, it would not count against the grantor’s lifetime exclusion amount. If policy ownership is transferred from the grantor to the ILIT three years prior to the grantor’s passing or the ILIT purchases the policy from the grantor, the death benefit is typically excluded from the insured’s taxable estate. Had the policy not been transferred to an ILIT and the insured remained the owner of the policy, the entire death benefit would usually be included in the insured’s taxable estate.

Please reference the following link with additional information on revocable trusts and irrevocable (ILIT) trusts:

The When

While there are a number of strategies to plan for an estate, administering an estate also requires a detailed structure to ensure that legacies are fulfilled and needs are addressed. The role of a successor trustee can be complex and taxing, but Weatherly Advisors can serve as a quarterback for optimal collaboration with your team of professionals. Our updated Estate Settlement Checklist catalogues key steps during the nine months of estate administration.

How WAM Can Help

Record-low interest rates, historically high exemption amounts, and unpredictable future tax policy make it more important now than ever to align Estate Planning objectives with desired outcomes. Through collaboration with your trusted professionals and next generation beneficiaries, Weatherly Advisors leverage financial and investment planning techniques to create a Ripple Effect across your interconnected family and community. Please reach out to a Weatherly Advisor for any assistance we can offer your family.


** The information provided should not be interpreted as a recommendation, no aspects of your individual financial situation were considered. Always consult a financial professional before implementing any strategies derived from the information above.

***Content Updated_Friday, April  23, 2021