The process of estate planning can involve the implementation of strategies that protect family wealth. When you first hear this statement, you may scratch your head. Why would I have to protect family wealth? Who is going to take what I have earned?
If you have been able to accumulate a significant amount of property, the tax man may want a slice of it after you pass away. This is why you may want to take steps to protect your family wealth when you are planning your estate.
The federal estate tax carries a 40 percent top rate that can significantly erode your financial legacy. To determine whether or not you are exposed, you compare the value of your estate to the amount of the federal estate tax exclusion.
When you are calculating the value of your estate, you have to include the value of your real property. There are many farmers and ranchers in our area, and vast tracts of land can be quite valuable, even if there is not a lot of cash to go around. This is something to take into consideration.
Plus, the value of life insurance policies that you have in your possession would also be part of your taxable estate.
In 2015, the exact amount of the federal estate tax exclusion is $5.43 million. However, we should point out the fact that there is an unlimited marital deduction. The estate tax does not apply to transfers between spouses.
Wealth Preservation Trusts
There are certain types of trusts that can be used to protect family wealth. These would be irrevocable trusts. As the name would imply, you cannot revoke or dissolve this type of trust. As a result, you are surrendering incidents of ownership, so you are removing assets from your estate for tax purposes when you fund an irrevocable trust.
There is a type of trust called a qualified personal residence trust that can be used to pass along your home to a beneficiary at a tax discount. If you would like to gain tax efficiency as you simultaneously help a charitable cause, you could use a charitable remainder trust or a charitable lead trust.
A grantor retained annuity trust could potentially provide tax efficiency if you are in possession of highly appreciable assets. Generation-skipping trusts are also used for tax efficiency purposes.
The ideal course of action will vary depending on the circumstances.
The estate tax is a looming threat for many high net worth families. If you are concerned, you should certainly explore your options with regard to tax efficiency strategies.
We offer free consultations, and we would be glad to evaluate your situation and make personalized recommendations. To set up an appointment, send us a message through this page: Grand Forks ND Estate Planning Attorneys.