New Era of Estate Planning in GA

Recently, Rose Drupiewski and Ashley Alderman were part of the New Era of Estate Planning in GA forum where they discussed the various facets and benefits of certain estate planning procedures. Attendees received the full rundown of information provided by Rose and Ashley, but below are a few key items we wish to share with you.

Rose discussed the benefits of giving away interests in a family business, such as a limited partnership or LLC, versus other types of assets that are more commonly given away, such as cash or marketable securities.  A few of these benefits include:

  • Greater asset protection for the gift recipients because of the limited liability provided by the entity under state law.
  • Greater control over how the assets are used following the gift, if the donor decides to retain control over the business.
  • Potential valuation discounts for gift and estate tax purposes, because interests in closely held businesses are generally traded at values.
  • The ability to slowly transition ownership of the business to younger generations.

Ashley talked about Sales to Defective Grantor Trusts.  These are especially effective in today’s economic environment of low fair market values and low interest rates.

She first described the characteristics of a Defective Grantor Trust, which include:

  • The Trust is treated as owned by the Grantor (in whole or in part) for INCOME tax purposes;
  • The Trust holds trust assets whose transfer was structured so as to constitute a “completed taxable gift” for GIFT tax purposes; and
  • The Trust contains trust assets that are NOT includible in the grantor’s estate for ESTATE tax purposes.

Ashley then reviewed how it is defective for income tax purposes because it is not considered a separate taxpaying entity from the Grantor, but it is effective for purposes of the gift tax and estate tax.

She also examined the basic structure of a Sale to a Defective Grantor Trust and the benefits of using this type of sale over a simple gift transaction. These include:

  • Because the Trust is defective for income tax purposes, the Grantor incurs no capital gains on the sale of the property to the Trust.
  • Because the Trust is not a separate taxpayer from the Grantor, the Grantor is responsible payment of the income tax liability generated by the Trust.
  • Payment of the income tax liability is not considered a gift to the beneficiaries of the Trust.
Explore posts in the same categories: Estate Planning, Presentations

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