Question

Propose basic estate planning strategy (without considering trusts) applying the final project fact pattern. Consider valuation, family limited partnerships, unified credit, and annual exclusion to accomplish long-term minimization of the client’s tax liability. Cite relevant legal authority for your answer. This milestone covers Section I Parts A and B (excluding trusts).

A. Create an estate planning strategy, showing versatility of thought, that will minimize estate and gift tax liability over the course of the client’s life span, potentially another 30 years. Assure that as little future tax liability as possible accrues to his children.

B. Utilize family limited partnerships to accomplish long-term minimization of the client’s tax liability. Consider the mechanics of these estate planning vehicles and the appropriate authority to cite.

Answer 1

Estate planning involves the will, trusts, beneficiary designations, powers of appointment, property ownership (joint tenancy with rights of survivorship, tenancy in common, tenancy by the entirety), gift, and powers of attorney, specifically the durable financial power of attorney and the durable medical power of attorney.

Some of the strategies are below :

• Using Exclusion Clause as per IRS :

Assets left to a spouse or any qualified charity are not subject to U.S. Federal estate tax. Assets left to anyone else—even the decedent's children— are taxed if that part of the estate has a value of more than $5,430,000 for a person dying in 2015 => known as the "exclusion.

Another side to this exclusion clause is : when, typically, one spouse dies and that person's trust goes to the surviving spouse. When spouse No. 2 dies, the $5.43 ceiling applies for the combined amount.

But then the Internal Revenue Service eased the rules, allowing for what's called "portability." Under portability, the surviving spouse's trust can use any unexercised portion of the dead partner's exclusion, a plus for heirs.

In addition to the annual exclusion amounts, you also can give the following without triggering the gift tax:

• Charitable gifts.
• Gifts to a spouse.
• Gifts to a political organization for its use.
• Gifts of educational expenses are unlimited as long as you make a direct payment to the educational institution for tuition only. Books, supplies and living expenses do not qualify.
• Gifts of medical expenses are also unlimited, as long as they are paid directly to the medical facility.

• Unified Credit :This enables you to give away $5 million (plus the annual inflation adjustments) during your lifetime without having to pay gift tax.
• Distributing the property in incremental gifts during the person's lifetime. Individuals may give away as much as $14,000 per year (in 2015) without incurring gift tax.

• Using the annual gift tax exemption. There is also a lifetime gift tax exemption that may apply.
• For college education , consider 529 college savings plan. Account earnings are free of federal income tax and a special gift tax exclusion allows to make 5 yrs worth of gifts to a single beneficiary in one year without trigerring the federal gift tax. The new tax law allows families to use upto $10,000 anually for K-12 tution.
• Utilising Roth Accounts IRA/401(k): It is effective way to hedge against threat of facing higher taxes in future.
• Start self managed super fund
• Structure your investments to pay for your old age care fees.
• An advance health-care directive. It comprises a living will and a health care proxy.

• A living will lays out your wishes for your medical care, should you become incapacitated. It covers topics such as whether you want your life to be artificially prolonged if you are in a vegetative state or have a terminal condition.
• A health care proxy allows you to name someone who will have the legal authority to make health care decisions for you in this situation. Give this a lot of thought — it’s a big job for the person you choose.

• qualified or non-qualified retirement plans (e.g. 401(k) plans and IRAs) certain “trustee” bank accounts, transfer on death (or TOD) financial accounts,
• Direct charitable gifts tax free from IRA. Account owners are limited to $100,000 annually, which can include the required minimum distribution (RMD), and the proceeds must be sent directly to qualified charity.
• a revocable living will
• convert your IRAs and personal account to Pay on Death accounts
• Review estate planning documents :

• Update beneficiary forms.
• Make a list of your assets.
• Make records of your digital assets.

• Remove Assets From Estate
  Make Annual Tax-Free Gifts
  • Simple, no-cost way to save estate taxes by reducing size of estate
  • $13,000 ($26,000 if married) each year per recipient (amount tied to inflation)
  • Unlimited gifts to charity and for medical/educational expenses paid to provider
• Transfer Life Insurance Policies to Irrevocable Life Insurance Trust
  • Removes death benefits of existing life insurance policies from estate
  • Included in estate if you die within three years of transfer
• Qualified Personal Residence Trust
  • Removes home from estate at discounted value
  • You can continue to live there
• Grantor Retained Annuity Trust / Grantor Retained Unitrust
  • Removes income-producing assets from estate at discounted value
  • You can continue to receive income
• Limited Liability Company / Family Limited Partnership
  • Lets you start transferring assets to children now to reduce your taxable estate
  • Often discounts value of business, farm, real estate or stock
  • Can protect the assets from future lawsuits, creditors, spouses
  • You keep control
• Charitable Remainder Trust
  • Converts appreciated asset into lifetime income with no capital gains tax
  • Saves estate taxes (asset out of estate) and income taxes (charitable deduction)
  • Charity receives trust assets after you die
• Charitable Lead Trust
  • Removes asset from your estate, saving estate taxes
  • Income goes to charity for set time period, then trust assets go to loved ones
• Buy Life Insurance
  Through Irrevocable Life Insurance Trust
  • Can be inexpensive way to pay estate taxes and/or replace charitable gifts
  • Death benefits not included in your estate
• Set up a donor advised Fund : This option would give you an immediate tax deduction for money deposited in the fund, and then let you make charitable grants over time. By naming a child or a grandchild as a successor for the fund, “it would keep the family involved in philanthropy,
• Using special-use valuation : This is applicable if you own a family farm or closely held businesses. The purpose of the break is to allow the family to continue to operate the family farm or family business after the death of the decedent. If the property is transferred to a nonfamily member within 10 years, the tax savings has to be repaid to the IRS.  Also, family members need to continue materially participating during the recapture period – ceasing to do so will trigger the recapture.
• Forming Family Limited partnerships : If you have a family Business , then this is useful. The partnership assets that are transferred are also eligible for the annual gift tax exclusion, which is a very useful way to reduce income, gift and estate taxes. Furthermore, the value of limited partnership shares will be discounted when they are transferred to other family members.

Hope this answers both the question parts .