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 heirs, we are pleased to offer a consultation to determine if you would benefit from an enhanced estate plan.(TM)
