People often reduce estate planning to the creation of a last will, but in reality, there are many different legal tools in the toolkit that estate planning lawyers can utilize. The proper course of action will depend upon the circumstances.
This is why we place an emphasis on personalized attention when we work with clients. We gain an understanding of your unique situation and your estate planning goals, and we provide the appropriate solutions. Let’s look at a couple of the scenarios that can call for the implementation of somewhat advanced estate planning techniques.
Estate Tax Strategy for Non-Citizen Spouses
People that have enjoyed significant financial success may be faced with estate tax exposure. At the time of this writing in 2019, the estate tax exclusion is $11.4 million. This is the amount that can be transferred before the estate tax would kick in. It carries a 40 percent maximum rate, so it can take a very significant bite out of your legacy if the value of your estate is in taxable territory.
The estate tax is potentially applicable on asset transfers to any and all family members with one exception. If you are married, and your spouse is a citizen of the United States, you can take advantage of the unlimited marital estate tax deduction.
This allows you to leave unlimited assets to your spouse free of the estate tax. Now that the federal government recognizes same-sex marriages, as long as you are legally married, you can take advantage of this marital deduction, regardless of orientation.
Getting back to citizenship, the estate tax, and asset transfers to your spouse, there is a solution in the form of a qualified domestic trust (QDOT). To implement this strategy, you convey assets into the trust. Your spouse would be the first beneficiary, and you would also name secondary beneficiaries (such as your children).
The trustee that you name in the trust agreement would be empowered to distribute the earnings from the trust to your spouse throughout the rest of his or her life. These distributions would be subject to regular income taxes, but the estate tax would not be applicable.
If the trustee was to distribute any part of the principal to the beneficiary for some reason, the estate tax would be a factor. However, it is possible to request a hardship exemption from the Internal Revenue Service.
After the death of the first beneficiary, the secondary beneficiaries would assume ownership of the remainder in the trust. The estate tax could be applied then if the value of the estate was in excess of the estate tax exclusion that was in place at that time.
Qualified Terminable Interest Property Trusts
Another type of trust that can be the ideal solution when certain circumstances exist is the qualified terminable interest property trust (QTIP). Though this type of trust does not necessarily have anything to do with estate tax efficiency or non-citizen status, there are some similarities between a QTIP and a QDOT.
Qualified terminable interest property trusts are often utilized by individuals that are getting remarried that want to protect inheritances that they will be leaving to children from previous marriages. In the same manner as the qualified domestic trust, assets are conveyed into the device, and the spouse of the trust creator or grantor is named the first beneficiary. The children of the grantor would be the successor beneficiaries.
The trustee can distribute the trust’s earnings to the surviving spouse after the death of the grantor of the trust. In addition to this, the survivor can also utilize property that has been placed into the trust, like homes and motor vehicles. However, the beneficiary designations can never be changed. After the death of the first beneficiary, the successor beneficiaries would assume ownership of the trust.
Attend One of Our Free Seminars!
We place an emphasis on education. You can learn a lot if you visit this blog often, and there are other resources on our website. In addition to the written materials, we go the extra mile in another very significant way.
Our estate planning lawyers regularly schedule informative seminars that are open to the public, and there is no admission charge. There are multiple sessions scheduled over the coming weeks, so you will definitely be able to find a seminar that fits into your schedule. If you are ready to reserve your seat, click the following link and follow the simple instructions: Los Angeles, CA Estate Planning Seminars.