Sophisticated Estate Planning Trust Techniques
Family Limited Partnerships/Companies (FLP/FLLCs)
Family Limited Partnership (FLP)/Family Limited Liability Company (FLLC) is a corporate structure whereby family members contribute assets in exchange for an ownership interest in the FLP/FLLC and is often used to centralize management of family assets as well as to simplify transfers of such assets between family members.
Gifts and Sales to Intentionally Defective Grantor Trusts (IDGTs)
A gift or sale to an intentionally defective grantor trust (IDGT) is often implemented when there is an existing FLP or LLC in place or in conjunction with the implementation of a FLP or LLC. The transaction allows for a gift or sale of assets at a reduced value to an irrevocable trust for the benefit of family members or other beneficiaries.
Grantor Retained Annuity Trusts (GRATs)
A grantor retained annuity trust (GRAT) is an estate planning tool that allows a person to pass the future appreciation of an asset to the next generation with little or no gift tax consequences. The trust is set up as an annuity where the donor receives an annual payment for a fixed number of years. At the end of the term, the remaining value of the trust is passed on to the beneficiaries or a trust for the beneficiaries. Low-interest rates make GRATs especially attractive because the required annuity payments are dependent upon the IRS’s prescribed section 7520 interest rate. To the extent that transferred assets appreciate at a rate higher than the IRS’s prescribed rate, excess appreciation passes tax-free to the beneficiaries.
Irrevocable Gifting Trusts
Irrevocable gifting trust is an irrevocable trust (trust whose terms cannot be changed) which is a separate legal entity designed to receive and hold gifts of property (tangible or intangible). The beneficiaries are usually family members of the Grantor (the person who creates the trust) but can be other persons if desired. The trust can be structured so that gifts contributed to it qualify for the annual gift tax exclusion amount.
Qualified Personal Residence Trusts (QPRTs)
A qualified personal residence trust (QPRT) allows an individual to remove a personal residence from his or her estate. QPRTs allow the owner of the residence to remain in the home for a period of time with a retained interest in the property. Once that period expires the interest remaining in the property is transferred to the beneficiaries or a trust for the beneficiaries. Because a fraction of the value of the property is retained by the owner, the gift value is lower than its fair market value.