After a lifetime of hard work to secure your family’s future, the absence of advanced estate planning strategies may result in a substantial portion of your accumulated assets falling under the purview of the IRS and state taxing authorities. Recent changes in tax laws have alleviated estate tax concerns for most individuals, with the current exemption exceeding $13.6 million (2024) and, when combined with a spouse, exceeding $27 million.
Our firm specializes in guiding affluent families through sophisticated planning strategies such as Family Limited Partnerships or Limited Liability Companies, Personal Residence Trusts, Irrevocable Life Insurance Trusts, and a diverse array of charitable gifting techniques. These strategies aim to minimize Federal Estate Taxes, Gift Taxes, and Generation-Skipping Transfer Taxes.
Family Limited Partnerships
A Family Limited Partnership (FLP) is a limited partnership structure among family members, offering advantages such as estate and gift tax savings and asset protection. By establishing an FLP, you retain control over transferred assets while enjoying these benefits. Gifts of limited partnership interests to your children or beneficiaries simultaneously achieve various estate planning objectives. The gifts leverage the annual gift tax exclusion, reducing the taxable estate value without incurring gift tax. Moreover, the value of partnership interests transferred to beneficiaries is less than the corresponding value of the partnership’s assets, allowing for discounts due to minority interests and lack of marketability.
Qualified Personal Residence Trusts
For many, homes constitute a significant part of the taxable estate. A Qualified Personal Residence Trust (QPRT) offers a discounted transfer of your house or vacation home, freezing its value for estate purposes while enabling you to continue residing in it. By transferring the title to the QPRT, with a specified number of years during which you reserve the right to live in the house, you can pass on the property to your children or other beneficiaries free of additional estate or gift taxes at the end of the specified period. The QPRT serves as an asset/creditor protection vehicle, as you no longer technically own the property once it’s transferred to the trust.
Irrevocable Life Insurance Trusts
Contrary to common belief, life insurance proceeds are subject to Federal Estate Taxes. Establishing an Irrevocable Life Insurance Trust (ILIT) specifically for owning your life insurance policy helps keep the proceeds outside your estate, preventing taxation. The ILIT, as the policy owner and beneficiary, allows you to use your annual gift tax exclusion for cash gifts to pay the life insurance premium, providing liquidity for estate taxes, debt repayment, final expenses, and income for surviving spouses or children.
Dynasty Trusts
Exclusive to Michigan and a few other states, Dynasty Trusts overcome the time limitation typically associated with trusts. Michigan’s legislation, enacted in 2008, allows trusts to last indefinitely or “in perpetuity.” These unending trusts, known as dynasty trusts, help preserve family assets, shield them from creditors, and avoid multigenerational estate tax depletion.
Our firm is committed to assisting clients in making informed decisions about their assets and collaborating with financial advisors and CPAs to implement highly sophisticated estate plans. Contact Bannon and Associates, PC today for more information.
Bannon and Associates, PC frequently assist clients in Wayne, Oakland, Washtenaw, Monroe, and Macomb counties.