Estate Tax Planning FAQs

Estate Tax Planning

Beginning your estate planning journey can be overwhelming and often confusing. For the family-oriented community of Orange County, ensuring that your chosen beneficiaries are taken care of after your passing is of paramount importance. 

It’s essential that you contact an experienced lawyer who can help you plan to shelter your assets and reduce both gift and estate taxes. Schedule a free consultation with OC Wills & Trust Attorneys today to get educated on estate tax planning.  

What is a bypass trust? 

A reputable attorney can help you use certain estate planning tools to help protect your assets. One of these tools is a bypass trust. A Bypass Trust is a legal provision created by a married couple stipulating that one spouse’s share of their estate transfers to a trust when they die. 

The trust can allow the surviving spouse to use its assets during their life. And when the surviving spouse dies, the assets go to the trust’s beneficiaries. A bypass trust can help lower estate taxes and shield assets from certain people. 

What is a charitable remainder trust? 

A charitable remainder trust, or CRT, includes both an income beneficiary and a public or private foundation or charity. The trust assets provide an income stream to the income beneficiary until the trust terminates, often upon the income beneficiary’s death. 

At this point, the charity or foundation receives the remaining trust assets. Some benefits of a CRT include:

  • Reducing your taxable estate 
  • Increasing your trust’s spendable income 
  • Receiving an income tax charitable deduction 

Most notably, you can bypass a capital gains tax on your estate when appreciated property is transferred to the trust. 

What is a qualified personal residence trust?

A qualified personal residence trust (QPRT) can dramatically reduce estate taxes on one-family homes and on vacation homes. You can create a QPRT by transferring your family home and vacation home into a trust, which means you no longer own the properties. 

However, you have the ability to include a stipulation specifying your right to live in the residence rent-free for a specified period. At the end of this period, the trust terminates, and the residence goes to the trust beneficiaries. 

A QPRT then removes the property’s value from your estate. This allows you to bypass estate taxes on those residences. 

What is a grantor annuity trust?

If you are hoping to reduce gift taxes, estate taxes, and generation-skipping transfer taxes, you can create a grantor-retained annuity trust (GRAT). Under the terms of a GRAT, the grantor transfers property to an irrevocable trust. 

In so doing, though, they retain the right to receive a fixed payment from the trust for a specified period of years. This period is known as the annuity term. When the trust terminates, the assets go to its beneficiaries. 

You can structure the GRAT so that the yearly payment to the grantor incurs little to no taxes. Provided that the grantor is alive at the end of the annuity term, all the GRAT’s assets are excluded from the grantor’s estate and cannot incur federal taxes. 

What is a life insurance trust? 

An irrevocable life insurance trust (ILIT) allows you to avoid estate taxes on life insurance proceeds. This can provide an enormous benefit to your remaining loved ones. 

Any person whose estate will incur an estate tax liability can benefit from an ILIT, which helps you avoid having life insurance proceeds included in the estate. As a result, you can avoid causing or increasing your estate tax liability. 

An ILIT can ensure that life insurance proceeds are not included in your taxable estate. The ILIT places the life insurance in an irrevocable trust, and the grantor names another individual as the trustee. The life insurance policy in the ILIT no longer has an owner; therefore, the policy is not considered to be part of your or your loved ones’ estates.

Utilizing Family Limited Partnerships as Part of Your Estate Plan

A family limited partnership (FLP) can preserve your family business for future generations. It can also help reduce gift and estate taxes and shelter other assets. This legal arrangement can be especially beneficial to high-net-worth individuals who invest in business succession planning and business continuity plans. 

An FLP helps reduce the value of gifts to your children and grandchildren, thereby decreasing the value of your taxable estate and any taxes your heirs have to pay upon your death. 

Contact OC Wills & Trust Attorneys Today

Unless you’ve been to law school, you are likely unaware of the many legal arrangements and provisions you can establish to reduce your taxable estate and ensure that your loved ones receive as much as possible after your death. 

Our team of dedicated and experienced lawyers at OC Wills & Trust Attorneys will work with you to establish an estate planning strategy. Get in touch with our team to learn more today.

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