I am a 70-year-old widower in good, but not perfect, health. I have three adult children. I recently sold my company for about $50 million (after tax) in cash. (Prior to this, my portfolio was worth $5 million.) I expect to spend about $250,000 a year in retirement and give $1 million a year to charities. I want to leave my money equally to my three children, and I want to revise my estate plan now, in light of the increase in my wealth. But the uncertainty over the future of the estate tax makes it hard to plan, especially since I may die before the issue is decided. I am also considering gifting money to my children. What is the best wealth transfer strategy at this time?Norman Boone, Boone Financial
Advisors, San Francisco:
CONGRATULATIONS! Keep $10 million to $15 million to provide for your personal needs. The income from the sale can be partially offset with a charitable deduction in the same year. One approach: a charitable lead trust will allow you to put about $15 million into a trust, pay to one or more charities about $1 million a year for your lifetime, and have the children receive the assets at your death. You might consider a private foundation for an ongoing legacy. For other assets, gifting to your children is less expensive if done while you are alive than at your death. Ideally, these will be made at a discount, generally involving either trusts or intermediary entities such as a family limited partnership. Check with your advisors about the details. Meloni Hallock, Ernst & Young,
Los Angeles:
Frequent law changes make it important to create an effective plan for today, and then revisit it on a regular basis. With that in mind, most taxpayers should continue with estate planning strategies that transfer appreciation out of their estates while avoiding gift taxes. Examine estate planning approaches that offer wealth transfer and minimize taxes, provide asset protection for you and your heirs, while ensuring that your liquidity concerns are met during your lifetime. At a minimum, your plan should include a will and possibly a revocable trust. Discuss with your advisor a no-gift-tax gift program that removes wealth and future appreciation from your estate without tax, and various strategies that can transfer considerable wealth while also meeting your charitable objectives with minimal gift tax (e.g., charitable remainder trusts). Catherine Keating, JP Morgan
Private Bank, New York:
Plan for yourself. Have a power of attorney for financial and health decisions. Cover the basics. Make annual exclusion gifts and direct payments of tuition and medical expenses. Use your lifetime gift tax exemption. In your will, incorporate generation-skipping tax planning by leaving legacies in trust to protect your family’s inheritance from unnecessary estate taxes and claims. Shift wealth in excess of available exemptions. Create a 15-year, zeroed-out, grantor charitable lead annuity trust (CLAT) funded with approximately $10 million. You will (1) receive a current year income tax deduction to offset gain from the sale of your company; (2) fund your annual charitable contributions; and (3) transfer over $4.5 million to your children tax free, if the CLAT returns just 7 percent over its term. Courtney Liddy, Merrill Lynch,
San Diego:
Continue to make sure that your assets are passed on as efficiently as possible to your children and charities. Consider some of the following strategies:
1. Make annual gifts of up to $11,000 in the form of cash, stock or other assets to each of your three children each year, tax free.
2. Take advantage of the lifetime gift tax exemption of $1 million per recipient. If you make a gift over $11,000 to any one child, that $1 million exemption is reduced by the amount of the gift over $11,000.
3. Set up a trust. Certain types of trusts can be powerful tools for achieving your two goals—namely charitable giving and leveraged asset transfers to your children—while eliminating or lowering your tax liability. Richard J. Szelc, Diane Lederman,
Neuberger Berman, Dallas:
A CLAT can be used to satisfy the charitable donations and, if the assets appreciate in excess of the IRS rate, to pass the excess to your beneficiaries free of estate and gift taxes. The CLAT can be structured so there is no gift tax and an immediate charitable deduction. Consider gifting the $1 million gift tax exemption using an FLP to leverage the exemption. A GRAT is another strategy that can be set up with no gift tax. Appreciation in excess of the applicable IRS rate can pass to your beneficiaries, estate and gift tax free. Finally, loans to family members can be used so that assets appreciate outside of your estate. Note that planning before the sale of a business can have optimal results. Send Us Your Questions. Are you wrestling with family issues, business governance or succession decisions, investment or estate planning dilemmas, problems related to philanthropic activities or foundations, or a similar predicament? We invite you to email a detailed question to advisorsforum@worth.com.
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