Wealth Preservation, Trusts and Estates

The Romney’s 2010 tax return (which is quite  lengthy and can be viewed in it’s entirety by clicking Mitt Romney’s Tax Return) gives us a few hints about trust and estate planning techniques of the wealthy that may have relevance for you – even if your net worth is closer to 1 million dollars than 150 million.

Article By: David M. Frees III, JD

As a matter of side interest, the Romney’s assets were held in a “blind trust” which arguably eliminates or minimizes conflicts of interest for a politicain or officeholder since they no longer know what investments are held by the trust and make no direct investment decisions.

However, the existance or not of a blind trust makes no difference from an estate tax planning perspective.

Why?

Any trust which allows you to continue to use the assets, and/or to control or revoke the trust will generally be included and taxed in your estate.

So what can we tell from his income tax return that might hint as his estate planning and why do you care?

Well, you should care if your assets, including real estate, IRAs and life insurance, business interests and investments exceed $1 million dollars since at the end of this year the amount that can be passed to your heirs without federal estate tax falls back to only $1 million dollars.

And, to make matters worse, the effective rate rises again from 35% to 42-55%.

Since Romney presumably has paid for some very  savvy lawyers, there might be a few lessons here that could matter to you and should be reviewed with your own lawyer before the end of the year.

First, there appears to have been a Grantor Trust established as the return shows income from a trust reported on his return.

If you own a business, certain types or real estate, and other assets and your estate exceeds certain limits, a Grantor Trust, or the sale of assets to a defective grantor trust might be an excellent way to transfer the asset and the growth on the asset out of your estate and further benefit the next generation by continuing to pay all of the taxes due on that income.

It also appears that the Romney’s funded a CRUT or Charitable Remainder Uni-Trust.

The CRUT can be an excellent way to transfer appreciated assets, to get a charitable deduction, and to retain income from those assets for some period of time.

There are lawyers, financial advisers, and accountants who advise the use of these trusts for tax planning alone.  Personally, I believe that they are best suited for those clients with a true charitable intent.

But, if you need income but would like to make a sizable gift to a charity that is important to you, consider and discuss this technique.

The 203 page return reveals the truly complex and seemingly insane level of energy required to comply with the intricacies of the Internal Revenue Code but I’ll take lessons and get ideas for my clients wherever I find them.

If you need information about Grantor Trusts, GRATs or CRUTs or any other planning techniques to protect your surviving spouse or herirs, we are pelased to offer a consultation to determine if you would benefit from an enhanced estate plan.(TM)

Please feel free to call 610-933-8069.

By:  David M. Frees III, JD

dfrees@utbf.com

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David M. Frees III, Esquire on The Ten Year GRAT

The Houses Passes A New 10 Year GRAT Requirement

On June 15th, the US House passed H.R. 5486 (a “jobs bill”) that contained a requirement that GRATS (Grantor Retained Annuity Trusts) be for a term of at least 10 years.

As readers know, we have been promoting and using GRATs for many clients as a way or moving large increases in wealth without triggering significant gift taxes.

GRATs are often used by clients with rapidly rising stock values, real estate, or other assets with a high probability of significant growth.

The government now views this technique as being just too good for the tax payer and is attempting to restrict it’s use to raise additional revenue.

The main purpose of H.R. 5486 is not, of course, to modify the GRAT rules. It is instead intended to create small business tax relief.

However, as mentioned, GRATs have proven to be a highly efficient technique for transferring wealth while minimizing gift taxes, provided that the grantor survives the GRAT term and the trust assets do not depreciate in value. And, taxpayers have become skilled at maximizing the benefit of this technique, by minimizing the term of the GRAT (thus reducing the risk of the grantor’s death during the GRAT term). Many clients use a term as short as two years.

Under the current bill, now also before the Senate, the minimum term would be ten years. This, of course increases the risk that the grantor might die during the term and the benefit to the family would be lost.

So, while the GRAT will remain a valuable planning tool. The days of the short term GRAT might be limited. If you find yourself moving toward a public offering, a land development plan or some other planning that might produce large value increases, be sure to consult your legal and tax advisers about all of your options in the face of this pending legislation and the appearance that it will pass both houses.

David Frees III, Esquire

David Frees writes on GRATs and other sophisticated estate planning techniques and actively helps affluent families and individuals in Pennsylvania to implement sophisticated estate and estate tax planning.

For more information on GRATs and related estate and asset protection planning call 610-933-8069. Law offices in Phoenixville, Malvern, and West Chester Pennsylvania.

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By: David M Frees III One of the best planning techniques for those with estates of 1 million dollars or more, and especially those with appreciating assets, Short term GRATs, might be a thing of the past soon. House Bill 4849 just passed the US house of representatives on March 24th and would make the minimum term for Grantor Retained Annuity Trusts a minimum of ten years. However, short term GRATs are one of the most powerful and effective estate planning techniques currently available for American Families.

So, if this bill, or a similar bill passes the Senate, a very powerful technique for moving assets from one generation to another without estate or gift taxes will be lost to the American tax payer and to all Pennsylvania residents doing federal estate tax planning.

If you’re interested in GRATs, just search our site for the many articles and information that we have published on this topic. But, as a brief review, GRATs allow you to move a higly appreciating asset out of your estate without paying gift taxes. However, if you die during the GRAT term (which currently can be as little as two years) the assets come back into your estate and get taxed at their current value.

Congress believes that this technique is so effective for tax payers, that if they eliminate short term GRATs, that it could result in significant revenue generation through higher estate taxes.

According to a group called Citizens for Tax Justice, this provision of the bill would raise an estimated $4.5 billion in 10 years…” This group is a lobbying organization that describes its mission as “requiring the wealthy to pay their fair share.”

So, be aware that 2010 may be the last year for the short term GRAT.

If you need assistance in setting up a GRAT, or want to know more about the many advantages of a short term GRAT before they are eliminated by Congress, please feel free to visit this site or to call David M. Frees III at 610-933-8069 or by email at dfrees@utbf.com.

For a free book on GRAT techniques, from Bernstein’s research group, click here.
For a free telephone consultation or appointment for estate planning including GRATs call Donna, Denise or Beth to set up the appointment and mention offer code: GRAT

David Frees and Unruh, Turner, Burke and Frees maintain law offices in Malvern, Phoenixville, and West Chester Pennsylvania and serve many surrounding communities including Wayne, Devon, Berwyn, Radnor, Exton, Chester Springs, and others.

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