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3 Trust Ideas for Reducing Estate Taxes

Bob Keebler spoke at the AICPA ENGAGE conference on “The Best Estate Planning Ideas Today.” Included in his detailed presentation were numerous points of interest beyond trusts. The following is a small selection from his 50-minute talk.

Because of the high limit on unified credit, many clients believe that estate planning isn’t for them. The truth, however, is much more complicated. Depending on the client’s state of residence, their positions in real estate or partnerships that might survive them and many other considerations, estate loss can be considerable. Your clients shouldn’t have to pay more than necessary in taxes on their estate, and as their trusted adviser, it’s your job to guarantee that the family’s wishes for their wealth are honored to the fullest extent possible.

Trusts are an effective way to protect assets from tax, creditors and other forces seeking to take a piece of what your clients have built over their lifetimes. Here are three worth considering carefully:

Charitable Remainder Trust: This kind of trust provides two big benefits to the client. First, it creates a place for them to donate assets (that might be burdened with high capital gains), giving them an immediate charitable deduction. Second, the trust generates regular income for the client, while remaining tax-free. Upon death, the remainder of the trust goes to the charitable organization, also tax-free. For charity-minded clients, this is the best of both worlds, allowing them to benefit from their assets, while also giving back.

Domestic Asset Protection Trust (DAPT): A DAPT is an irrevocable trust that is set up under the laws of the states, allowing a person to be a discretionary beneficiary of his/her own trust without creditors being able to access it. This means the trust is safe from a wide spectrum of threats, including divorce, bankruptcy and taxes. However, not all jurisdictions are equal in this regard. It’s important to choose a state with a short statute of limitations, and one where no statutory exception creditors have access.

Dynasty Trust: In all the tax reform talk about a potential repeal of the estate tax, it is sometimes lost that the GST, or Generation Skipping Tax, and Gift Tax will likely still exist. Clients wishing to leave a legacy to future generations of their family could suffer significant burdens from both taxes as they work to pass on their wealth. A dynasty trust is set up so that the trust can make discretionary distributions that avoid the GST. Numerous benefits include protection from estate tax, creditors, divorce, direct decedents and spendthrifts. Additionally, it allows for a consolidation of client capital.

A good CPA financial planner looks at all the available avenues of planning for their clients, and makes their best recommendation based on the client’s individual needs. Once you have thoroughly discussed the pros and cons of each with your client, and they’ve made a final decision, you should involve your attorney partner to have appropriate documents drawn up.

For more information on trust and estate planning, the AICPA Personal Financial Planning Division has created a comprehensive, 1,000+ page resource, The CPA’s Guide to Financial and Estate Planning.

Robert S. Keebler, CPA/PFS, MST, AEP, is a partner with Keebler & Associates, LLP and the current chairman of the AICPA Advanced Estate Planning Conference. In 2007, he was inducted into the Estate Planning Hall of Fame of National Association of Estate Planners & Councils. He has also been named by CPA Magazine as one of the Top 100 Most Influential Practitioners in the United States and one of the Top 40 Tax Advisors to Know During a Recession.

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