Estate Plan Instruments to Help Shield Assets and Reduce Taxes

June 12, 2014

In the Medical Economics article published 6/10/2014, Brian Luster and Steven Abernathy detail some instruments that may be used in an Estate Plan to help eliminate uncertainties over the estate itself, maximize the estate’s value by reducing taxes and expenses, and shield assets from creditors, litigants, and ex-spouses. And most importantly, the properly prepared estate plan will successfully transition the estate’s assets to heirs.

The estate plan must be properly organized at the very beginning in order to reduce taxes that may otherwise affect the estate plan if not correctly structured. In order to appropriately setup the estate, the article identifies three instruments used in estate planning:

  1. Family Limited Partnerships (FPL)
    1. Discounts apply to gifts made to a trust, up to 40%. Thus using an FPL instrument, one can reduce taxable amount of the estate and gifts as well as avoid estate taxes
    2. FLP can include a range of assets including real estate
  2. Intentional Defective Grantor Trust
    1. This trust ensures that the grantor will be responsible for paying income taxes. The result is that the principal amount and all income remain in the trust, thus it will increase in value more than it would have if the income in the trust was taxed and paid by the trust.
  3. Grantor Retained Annuity Trust
    1. The trust allows the grantor to separately value different interests (or cash flows) of the asset, thus minimizing the gift tax.

View the full article at Medical Economics:

The information contained in this article is general in nature and not a comprehensive account of everything that is required for planning and preparing an estate plan. Please seek the advice of your legal team for estate planning.