Advanced Tax Planning
Advanced Tax Planning Strategies for Large Estates
You will be subject to Estate tax, If your estate exceeds the Estate Tax Exemption. You should consider the following alternatives in order to avoid estate tax exposure:
Irrevocable Life Insurance Trust
To remove the proceeds of your life insurance policy from your estate is the main goal of an Irrevocable Life Insurance Trust. In this case, the Irrevocable Life Insurance Trust owns the policy, rather than you owning the policy yourself. You are supposed to "gift" money to the beneficiaries of the Irrevocable Life Insurance Trust, to pay the life insurance policy premium.
The beneficiaries will not withdraw the money though they will have a right to withdraw. Instead, the money will be utilized to pay the life insurance policy premium. The death benefit of the insurance policy will not be included in your estate for estate tax purposes, assuming you hold on to the required formalities in the management of the Irrevocable Life Insurance Trust.
Also, within 9 months of your death, the death benefit can be used to create liquid assets for payment of any estate tax due.
Qualified Personal Residence Trust
To remove your principal residence or one other residence (i.e., a vacation home) from your estate, a Qualified Personal Residence Trust is set up. In this Qualified Personal Residence Trust, you can transfer your residence to the Trust and lease it from the remainder beneficiaries for its fair rental value.
Charitable Remainder Annuity Trust
The objective of a Charitable Remainder Trust is to eliminate a valued asset from your estate. A Charitable Remainder Annuity Trust provides distributions of a fixed dollar amount each year for a specified period to a beneficiary designated by you. At the end of that period, the assets in the Charitable Remainder Annuity Trust are distributed to a charity. Since the Charitable Remainder Trust does not pay current income tax on the sale, this vehicle is most often used if you have an appreciated asset that you want to sell.