Many individuals in Utah work hard to provide for their loved ones and make their lives more secure. However, a significant portion of the assets they accumulate could be lost through both federal and state taxes.
That’s where advanced estate planning comes in. Our firm helps Utah families develop more sophisticated estate planning techniques in order to minimize taxes. These strategies include Family Limited Partnerships, Qualified Personal Residence Trusts, Irrevocable Life Insurance Trusts, and charitable giving.
Family Limited Partnerships
A Family Limited Partnership (FLP) is a kind of partnership that exists among family members. There are many benefits to forming an FLP including asset protection and tax savings. An FLP can help you obtain different estate planning goals at the same time by giving you more control over the assets that are transferred.
For example, each gift of limited partnership interest that are given to children helps to decrease the overall value of the estate. This, in turn, decreases the amount of taxes your children or other beneficiaries would owe. The annual gift tax exclusion means that there might not be any gift taxes owed on the transfers.
If the business is established as an FLP, a minority discount can be used to decrease the value of gifts. A discount can also be applied because of the lack of marketability of limited partnership interests since FLPs are not publicly traded. FLPs allow for some protection from creditors since the partners are not obligated to distribute the profits of the business.
Qualified Personal Residence Trusts
Since homes are usually one of the most valuable assets that individuals have, they make up one of the largest parts of a person’s taxable estate. A Qualified Personal Residence Trust, or QPRT, allows someone to use their home to his or her advantage in estate planning.
With a QPRT, you can freeze the value of a house or vacation home for tax purposes or give them away at discounts all the while continuing to live in the residence. All you do is transfer the title of the house to the QPRT and you reserve the right to live there for a certain number of years. If you live until the end of the specified length of time, the house will pass to your beneficiaries free of additional taxes.
At the end of the designated time period, you have the option to continue to live in the house but you must pay rent to the family or beneficiary. If you pass away before the end of the time period, the complete value of the house is included as part of your estate.
A QPRT also helps to protect your home from creditors since you no longer legally own the property once it is transferred to the trust.
Irrevocable Life Insurance Trusts
One of the common myths about life insurance is that its proceeds are not taxable. While loved ones can receive the proceeds free of taxes, they are still counted as part of a taxable estate. This means that beneficiaries could lose half of the value to estate taxes.
One answer to this problem is an Irrevocable Life Insurance Trust or ILIT. An ILIT holds a life insurance policy so that it is outside of a person’s taxable estate. The proceeds can be used for a wide variety of purposes including paying off debts, covering final expenses, paying estate taxes and providing for surviving family members.
In this arrangement, the ILIT is both the policy owner and beneficiary. After the trust is established, cash gifts can be made to the trust. Instead of immediate gifts, beneficiaries will receive future proceeds, and the trustee uses the remaining amount to pay the policy’s premium.
ILITs can be established for a variety of purposes. They can be created in blended family situations to provide assets to surviving spouses with the rest going to children from a previous marriage. The proceeds of an ILIT can also be distributed in limited amounts over time to a child who might be financially irresponsible.
Our firm is passionate about helping our clients make wise decisions regarding their assets. We will work with you to create and implement an effective estate plan to maximize the transfer of assets to loved ones.
Wilson Law Offices- 1555 E. Stratford Ave., #100,
Salt Lake City, UT 84106 - 801-467-5800