From the book by David T. Phillips, The 10 Most Common Estate Planning Mistakes and How to Avoid Them
Many affluent Americans don’t comprehend the need to share their wealth with loved ones while they are still alive. Furthermore, they don’t understand the power that “leverage” can create and the many tax benefits that can and will be realized if they apply this simple concept. In fact, in most cases, by leveraging the IRS gift allowance, all estate shrinkage can be totally eliminated, and their financial legacy can live on. Yet only a handful of prudent taxpayers utilize this basic, but powerful, strategy.
Each and every American can, by current law, gift $15,000 annually — completely tax-free — to anyone they want. I often joke in estate planning seminars that I can legally drive up to a homeless man on the corner and really make his day by telling him that by virtue of the gifting laws, I would like to cut a check in his name for $15,000 that would be totally income, gift and estate tax-free.
Of course, doing so may not be the wisest move. But it would be very effective in shrinking one’s estate. Consider how such a gift would benefit those you really care about, at the same time reducing your estate annually by the amount of the gift. A married couple can each gift this allowance, meaning that they could gift up to $30,000 per year per beneficiary. A couple with five children, five grandchildren and two great-grandchildren can gift up to $360,000 per year. By maximizing this tax-free strategy annually, one’s estate could shrink with relative ease.
Annual gifts are a “use it or lose it” proposition, with no carryforward provisions into the next year. Another option that is still on the table is to consider transferring all or a portion of your lifetime gift allowance, currently unified with the estate tax exclusion of $11.2 million. By transferring assets today via an Integrated Family Dynasty Trust, you will be able to retain control, continue to receive income and freeze the transferred asset so that all future growth is out of your estate. Of course, once you have used your lifetime gift, you cannot use it again when you die. Transferring your lifetime exclusion in an Integrated Family Dynasty Trust is an advanced estate planning strategy and should be discussed with a top-notch estate planning attorney. …
True, some might question the wisdom of gifting these funds to your family while they are young, believing that if they start to depend on the annual or lifetime gift, they will become counterproductive. However, there is no law requiring that the recipients must actually receive the gift in cash; nor do they need to have access to the gift immediately.
By transferring the gift inside an irrevocable trust, such as a Spousal Support Family Dynast Trust (SSFDT), an Integrated Family Dynasty Trust (IFDT) or an Irrevocable Life Insurance Trust (ILIT), it can be stipulated that while the gift is given today, it cannot be accessed until certain parameters are achieved, or the recipient reaches a given age. You should maintain as much control as you can over these gifts for as long as possible. Never let your beneficiaries dictate what should be done with your gift to them, as this usually spells disaster. You are the benefactor and should always maintain control, even after you are gone.
Another idea: Rather than giving the gift outright to your heirs today to do with it as they please, invest today’s gift in something that immediately significantly multiplies. This strategy is known as “The Gift Tax Leverage Coupon” and can be implemented for a married couple or those that are single.
For example, if a couple, aged 65, set aside a simple gift of $30K a year to just one child, that money would mushroom to over $3 million of tax-free cash for delivery when the surviving spouse dies. This is accomplished by establishing a Joint and Survivor (JLS) Life Insurance policy inside an ILIT, SSDT, IFDT, or by gifting it directly to the children and using the $30K gift each year to fund the insurance premium. The tax-free life insurance proceeds could be used to pay future income taxes, created a guaranteed estate, replace assets gifted to charities, cover debt, etc. …
The GTLC concept is easy, effective and can allow your estate to remain intact and out of the hands of the federal government.
This book and others by David T. Phillips are available at the website of Estate Planning Specialists (888-892-1102). David is the CEO of Phillips Financial Services and founder and CEO Estate Planning Specialists.
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