Estate Liquidity and Generational Wealth Transfer Planning Needs

Estate Liquidity and Wealth Transfer Planning Needs

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While there are numerous strategies when addressing the need for estate liquidity and wealth transfer planning, the goal is always to identify optimal solutions and opportunities. In a landscape where legislative and tax rules are ever changing, you want solutions that are both long-lasting and flexible. And no matter how well designed, legacy plans require timely review to ensure they continue to fulfill objectives despite inevitable changes to the family situation, the economy and tax laws.

Currently, among the prevailing issues of estate planning techniques or opportunities are:

  • Historically high transfer tax exemption(s)
  • Low tax rates and interest rates
  • Valuation discounts on family-controlled entities
  • Perpetual dynasty trusts
  • Disregarded transactions for income tax purposes with grantor trusts
  • Grantor trust substitution and borrowing powers
  • Non-reciprocal trusts for the benefit of each spouse
  • Short term and zeroed-out grantor retained annuity trusts (GRATs)
  • Economic benefit split dollar with survivorship life insurance
  • Domestic Asset protection trusts

Historically Low Interest Rates and Historically High Wealth Transfer Opportunities

The Applicable Federal Rate (AFR) and §7520 Rate are at historic lows due to the Federal Reserve’s reduction of short-term interest rates. Although the Federal Reserve’s decision to keep interest rates low has caused uncertainty in many areas of the economy, low AFRs can increase the effectiveness of some wealth transfer strategies, including Grantor Retained Annuity Trusts (GRATs).

An Overview of Grantor Trusts in Estate Planning

Life insurance owned by an irrevocable grantor trust can provide all the policy’s traditional wealth transfer benefits and uses while also reducing the grantor’s income tax

estate liquidity and wealth transfer

liability with respect to trust due to its tax favorable treatment.

  • A grantor trust can increase wealth transfer over a non-grantor trust, but the grantor must have the personal cash flow available to pay the income tax on the trust’s taxable income;
  • The tax-deferred cash value build-up of life insurance can reduce the grantor’s personal tax expense; and
  • The leverage and income tax-free basis step-up of the death benefit outside the estate can offset post-death trust income taxes and further enhance the transfer of wealth.

While a grantor trust is often used as part of an estate planning strategy, paying the trust’s income taxes requires clients have sufficient personal cash flow to meet lifestyle needs.

Learn more ways to protect your family, your family owned business, and all you have accomplished by talking to the team at Fulcrum Partners.

Resources and Related Insights:

Why Now Is The Optimal Time To Gift To Loved Ones (Financial Advisor 9/1/2020)

2020 Tax Planning: Techniques that May Not Exist in 2021 (JD Supra 9/4/2020)

#estateliquidity #wealth #estateplanning

This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, accounting, legal or tax advice. Any tax advice contained herein is of a general nature. You should seek specific advice from your tax professional before pursuing any idea contemplated herein.

Securities offered through Lion Street Financial, LLC (LSF) and Valmark Securities, Inc. (VSI), each a member of FINRA and SIPC. Investment advisory services offered through CapAcuity, LLC; Lion Street Advisors, LLC (LSF) and Valmark Advisers, Inc. (VAI), each an SEC registered investment advisor. Please refer to your investment advisory agreement and the Form ADV disclosures provided to you for more information. VAI/VSI, LSF and BDO Alliance USA are non-affiliated entities and separate entities from Fulcrum Partners and CapAcuity, LLC. Unless otherwise noted, VAI/VSI, LSF and BDO Alliance USA are not affiliated, associated, authorized, endorsed by, or in any way officially connected with any other company, agency or government agency identified or referenced in this document.

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