Estate Planning

Gifting and Trust Strategies

Gifting, especially when combined with a trust, can reduce estate tax liability and preserve your wealth.

Protect Your Estate

Gifting Can Reduce Tax Liability

In order to reduce the amount of estate, income or inheritance tax that your heirs will have to pay, you can take advantage of tax efficient gifting strategies.

Each year, a donor has a maximum value that they can give before it becomes taxable. If they make these gifts each year, over time the transfer of assets/funds can build up to a significant amount.

Assets can be given directly to heirs or protected in a trust (usually at a lower tax rate). Gifting not only removes taxable assets from the estate, but also allow the assets to appreciate in value outside of the estate, further reducing potential estate tax liability.

Trusts and Life Insurance Offer Even More Protection

About trusts: There are many types of trusts, and sometimes gifts can be used to fund them. Depending on the type of trust, a donor transfers assets or property to the trust, and a trustee manages the distribution of assets to beneficiaries. The trustee must follow the instructions set forth by the trust creator. Trusts can be funded either during the donor’s lifetime or upon their death.

Here is an estate planning best practice: combine gifting with an Irrevocable Life Insurance Trust.

Let’s compare 3 different types of trusts:
Revocable: Assets in a Revocable Trust are still considered part of the donor’s estate because the donor still controls the assets.

Irrevocable: An Irrevocable trust removes the assets from the estate because the donor has given up all rights to ever revoke the trust. However, the trust can remain long after the donor has passed, even in perpetuity in some states. These trusts can also hold a wider array of assets, including life insurance policies. They can increase creditor protection, help avoid probate, and allow for more control over the distribution of assets.

Irrevocable Life Insurance Trust: This type of trust can be even more beneficial by allowing the donor to purchase a life insurance policy within the trust. The death benefit is usually free of income tax and estate taxes and can be used to provide liquidity to pay taxes and other fees.