The election is finally past us and for wealth advisors the work and the uncertainty is probably just beginning.

JORY BARD ZIMMERMAN joins us to discuss some of the tools to help wealthy clients take advantage of the tools available in 2020, incorporate philanthropy in in one’s planning and get a rolling head start into an interesting looking 2021.

Jory is an attorney with expertise in trusts, estates and wealth planning. She has deep experience in advising high net-worth clients on their personal, tax savings and philanthropic goals.

Here is the outline of our discussion:

—> Year-end gift planning: eg. using exemptions now, if possible, before they change:

Applicable Federal estate and gift tax exemption for persons dying or gifts made in 2020 is $11.58 Million per individual, or @$23MM per couple (no claw-back). 

For transfers made after December 31, 2025, Federal exemption will revert to $5M, adjusted for inflation (@ $6MM in 2026), or maybe back to $3.5MM

Current thinking: exemptions may be reduced as early as next year to provide funds needed for stimulus and due to COVID.

Interest Rates plus lower Asset Valuations: Pandemic volatility in the financial markets plus low interest rates may be an opportunity to consider transferring depressed-value investments to family members through a GRAT, where little or no exemption may be required to effect the gift; remainder at end of GRAT term may go to family or a continuing trust.

Will unused exemptions be lost?

It’s not exactly 2012 again: Most clients made gifts outright back in 2012; Now more clients are using a trust to receive gifts (control + access)

Don’t forget about the Annual Exclusion! $15K or $30K per couple per beneficiary  (that can add up quickly) – using the Educational / Medical exemptions are also a powerful tool.

For New York: $5.85MM estate tax exemption with an ESTATE TAX CLIFF, tax over @$6.2MM in assets (no gift tax but 3 year add-back until 12/2025). See more about how that works HERE:

—> Charitable planning and COVID:

In these uncertain times, charitable organizations need assistance more than ever plus clients may be seeking an income tax advantage (deduction). This is the time when charities need you the most.

For 2020 (CARES Act), $300 per individual above the line deduction ($600 married couple, no itemizers, no AGI % limitation, must be to public charity, not a Donor Advised Fund.

Also, 100% of cash contributions, no AGI % limitation (consider contributions of Long Term Capital Gain property subject to 30% of AGI), must be to public charity, not Donor Advised Fund.

For 2020 (SECURE Act), no more â€œstretch IRA’s” (limited to 10 years + certain eligible beneficiaries), may name CRUT as an IRA beneficiary to mimic the “stretch”. This is the time to review and revise IRA beneficiary designations.

Biden is talking about eliminating capital gains and taxing them as ordinary income (proposed rate of 39%), may be better to donate appreciated assets to charity (proposals from the Obama Green Book, e.g.., carryover basis, cap gains at death, like a sale, roll-back exclusion, GST’s limited to 50 years so no dynasty trusts). Time will tell what this looks like with a divided government.

For New Yorkers, consider giving a dollar amount of the estate over â€œcliff” to charity, so that you don’t fall off the cliff and create an additional NYS estate tax burden.

—> Diversifying trusts by situs + Directed Trusts: 

Trust friendly jurisdictions with no income tax, e.g.. Delaware (basically) and Tennessee appeal to greater NY-area grantors, South Dakota and Nevada are used more by California clients.

For example, creating SLAT’s (Spousal Lifetime Access Trusts), each spouse create a trust for the other. There is a need to diversify by different states to enhance creditor protection and to use different terms, jurisdictions assets and trustees to avoid the IRS’s reciprocal trust doctrine. The reciprocal trust doctrine can defeat SLAT planning.

Consider self-settled jurisdictions, eg. Connecticut & Delaware; distinguish from â€˜asset protection’ trusts which have specific rules in DE, FLA, NH, WY, etc.

Many states have a Directed Trust statute (DE, Tenn, NJ, CT, etc., not NYS). They are used  most commonly to give a third-party advisor the ability to direct the investment management decisions or to hire a professional money manager for the trust assets. Then the appointed trustee only performs the administrative functions of the trust and may have other fiduciary oversight responsibility depending on the nature of the drafting.  

Trend: Increasing utilization of Trust Protectors:  Trust Protectors are an independent, third-party or other person (not the named trustee or beneficiaries) with authority over the trust for designated decisions, eg.: directing investments, modifying +/or terminating a trust, changing tax situs, changing trustees, etc.  

The powers of a Trust Protector (which is based on the British concept) may be narrow or broad depending on the terms of the trust agreement, as circumstances warrant.  

The Trust Protector often a family member (e.g.. an uncle), but may be an independent individual (e.g.., a friend or advisor) to provide an objective voice in the mix.

Directed Trusts work well for clients who want to appoint a corporate trustee for a trust but also want to have someone other than the corporate trustee control certain decisions with respect to the management of the trust, for example:

A family with a long-standing relationship with a successful money manager might want that manager (not the corporate trustee) to make investment management decisions for trust assets.

If a client funds an inter vivos trust with stock in the family company, he or she might want to continue to make decisions regarding the purchase, sale, and voting of such stock.

A client might want someone other than the corporate trustee to decide when to make income or principal distributions to beneficiaries.

Final Remarks:

Careful review of client’s facts and circumstances (where they reside, own property, types of assets, etc.) together with local law is critical before selecting situs/ jurisdictions.

Fun Question:

Jory- when things start opening up again, what is the first thing you’re going to do for yourself?

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