Estate Planning Tools for Wealth Transfer

By: LawInfo

Published: 10/2009

Proper estate planning does not leave all the transfer of all of your money and assets until the time of your death. Many people, particularly those who have enough assets to be subject to estate tax, must consider wealth transfers while they are living. Wealth transfers should be part of a systemic and organized estate plan that you develop with an estate planning attorney. Many types of wealth transfers allow you to continue to benefit from your assets while transferring ownership to others so that the assets are not included in your estate when you die.

Common Types of Wealth Transfers

Some common ways to transfer wealth include:

· Gifts: gifts of money may be made by a grantor at any time. However, gifts over a certain amount of money are taxed (in 2009, the amount was $13,000 per gift recipient per year).

· Irrevocable Gift Trusts or “Crummey Trusts”: a gift tax is imposed on gifts over the annual allowable amount. However, in order to be taxed the beneficiary of the gift must have a present interest in the gift. If the gift is placed into a trust to be distributed to the beneficiary at a later time then the beneficiary does not have a present interest in the gift and is not responsible for the tax. The beneficiary of a Crummey Trust must have the right to withdraw a contribution made by the grantor within thirty days. If that right is exercised then the gift may be taxed.

· Qualified Personal Residence Trust (QPRT): in order to create a QPRT, a grantor must place a personal residence into a trust and name a beneficiary such as a spouse, child or charity. The trust documents allow the grantor to continue living in the home rent free for a specific number of years. After that time has expired, the grantor must pay a fair market rent to continue to live in the home.

· Grantor Retained Annuity Trust (GRAT): a grantor sets up a GRAT by making donations into a trust. The trust documents provide that the grantor receives an annual payment, or annuity, from the trust for a certain amount of time. After that time period has expired, the remainder of the trust assets passes to the beneficiary who must be a family member of the grantor. This type of wealth transfer avoids gift taxes being imposed on the transfer.

· Family Limited Partnership (FLP): family members can contribute assets (typically income producing assets) to a family limited partnership. The partnership can have general partners and limited partners. Usually the older generations or people making the most significant contributions are the general partners and they maintain discretion over the partnership’s assets. The limited partners are typically the beneficiaries of this kind of wealth transfer tool.

· Charitable Lead Annuity Trust (CLAT): a donor puts assets into an irrevocable charitable lead annuity trust that pays a set amount of money to a charity annually for the term set in the trust. That term may be a set number of years or for the lifetime of the donor. At the end of the term, the donor, or his named beneficiary, is entitled to the assets remaining in the trust.

There are many ways to transfer wealth. Each individual has different needs with regard to transferring wealth that are dependent on the value of his or her assets and family needs. Therefore, it is important to consult an experienced estate planning attorney to develop a strategic wealth transfer plan to meet your individual needs.