It’s Almost “That” Time!

Well, it’s that time of year, and everyone is preparing their list of tax deductions in hopes that the jolly Internal Revenue Service will provide them with tax breaks. Between now and year-end I will be addressing year-end tax planning, and hopefully, filling everyone’s stockings with deductions.

A perennial question is the deductibility of legal fees. I have received a request from an attorney, whose primary practice is the sale of businesses.  He wrote:

“We have a client who has asked whether our legal expenses for Trust and Estate planning could be run through his company (he is the sole owner). I am curious as to the accounting basis for doing this deduction. I will obviously have the client double check any course of action with his CPA, but I’m curious as to your thoughts on this matter. Any help or advice you can offer would be very much appreciated.” [Read more…]

Should You Retitle Your Cemetery Plots?

For today’s posting I thought I would pursue a holiday theme. All Hallows’ Eve is just around the corner. It is the night which precedes All Saints Day. All Saints Day is a Christian holiday in which Christian Saints, martyrs and departed family and friends are remembered. Also, to reinforce the interactive nature of the blog postings I thought I would include an adviser’s question. Here is what came across my desk on Monday:

Tom,
Ok, I had to ask you this because I thought it might be a question you have never considered before.  I have a client who has pre-paid cemetery plots, and she wonders if they should be retitled into the name of the RLT. Is that possible and have you ever heard of such a thing? Thanks for thinking this over.

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IDGT: The Multi-purpose Tool for an Integrated Financial Plan

In my previous post I provided a brief history of IDGTs, the applicable exclusion amount and the need for a trust to be the owner and beneficiary of a life insurance policy on the life of the grantor. The primary reason for trust ownership was to remove the death benefit from the taxable estate. However, as a result of American Taxpayer Relief Act (ATRA) of 2013, this reason was eliminated due to the applicable exclusion amount being raised to $5,250,000. An additional benefit of a properly drafted IDGT is asset protection for the trust corpus.

The trust may hold assets used to pay the insurance premiums on a life insurance policy, which insures the life of the grantor. This is one of the requirements necessary for a trust to be considered intentionally defective. A properly drafted IDGT allows the grantor access to the trust assets either through themselves or a non-donor spouse (spousal lifetime access). Having these assets inside of the IDGT trust provide asset protection for the beneficiaries and the grantor!

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You Have Options

Since the Qualified Personal Residence Trust (QPRT) is also an Intentionally Defective Grantor Trust, it is an excellent asset protection tool. To begin today’s posting, I need to provide full disclosure. The QPRT involves both trust and tax planning: so the underlying mechanisms are complex. I want to advise you not to attempt this strategy on your own. But instead, consult your CPA and attorney before transferring your home into a trust.

A QPRT is an irrevocable trust funded by the transfer of a personal residence, a vacation home, or both, to the trust. The homeowner still retains a right to reside in the home for a term of years. The term selected is typically between five and 20 years, although the IRS imposes no minimum or maximum term: the longer the term, the greater the benefits that are available. At the end of the term the homeowner no longer has the right to live in the residence. However, if they desire to continue to live in the home then they may then lease the property from the trust or its beneficiaries, which is typically involves their children.

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Estate Planning with Intentionally Defective Grantor Trusts

As you may have noticed, both of last week’s blogs discussed Intentionally Defective Grantor Trusts (IDGTs). This began our month of focusing on IDGTs. Each month I will have a theme and focus the majority of the blogs on that topic. In addition, beginning this month, I will conclude each month’s theme with a one-hour CE/CPE event. I will host this month’s CE/CPE Webcast: Diamonds in the Rough – Estate Planning with Intentionally Defective Grantor Trusts (IDGTs) on Friday September 27, 2013 at 1:30PM EST.

Daily, I receive questions from advisors on topics ranging from Asset Protection to Life Insurance and my response always begins with the question: Is there an Intentionally Defective Grantor Trust (IDGT) for us to use in the estate plan?

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