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Financial Planning > Trusts and Estates > Estate Planning

Estate Planning For The Large Estate

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“The rich aren’t like you and me,” wrote F. Scott Fitzgerald in “The Great Gatsby.”

That means that your usual approach to insurance sales may not be as effective with the very wealthy as it is with prospects of more modest means. Estate planning for the large estate has different considerations and tools but can easily increase your value to wealthy clients.

The usual topics of A-B trust planning–the need for a will, the wonders of an irrevocable life insurance trust and annual exclusion gifting–are not likely to capture the attention of the ultra-rich. What might is an arsenal of sophisticated planning topics.

The goals are to bring something new to the table and to discuss techniques that are advantageous and do not require related “cost recovery” or “liquidity funding” with life insurance. For many, prevailing themes include asset protection, discounted transfers of substantial assets and, perhaps most importantly, control from the grave.

One very common tool among the mega-rich is the grantor retained annuity trust or GRAT. This estate freeze device allows the grantor to transfer assets to the next generation at a discount, take back fixed dollar annuity payments for a period certain and remove future growth of the asset from the estate.

Clients who prefer to sell an asset to a child rather than give it outright should consider a private annuity, which provides an income stream to the original owner for life. Since the payments stop at death, this contractual obligation has no value at that point; so nothing is included in the original owner’s estate. In addition, all future growth inures to the benefit of the buyer.

You also may want to discuss the private foundation with your clients. If so, be sure to point out the strict limitations placed on such entities.

Perhaps your prospect really needs a charitable remainder trust to avoid capital gains tax, take back an income stream and receive an income tax deduction. The CRT also allows individuals to liquidate an underperforming investment or diversify their portfolio, and do something nice for their favorite charity. It pays not to be a one-trick pony in the charitable giving market.

Trust planning is a popular topic among the very wealthy. There are numerous variations of trust planning that address particular concerns of your well-to-do clients.

A dynasty trust is used to provide funds for the grandchildren and the many generations that follow behind them. These trusts can last forever if established under the laws of states that have repealed the rule against perpetuities.

If you have worries about insurability at the older ages, insure the clients’ children for the benefit of the grandkids. Done properly, such trusts can avoid totally the generation-skipping transfer tax, which is currently at 47% and is in addition to any gift or estate taxes that may be due.

How about a situation in which a family has a child or grandchild with a disability? A special needs trust, funded with life insurance on your clients, can provide the funds to care for a child’s special needs for years to come. If drafted properly, it also can preserve any federal or state funds the child is entitled to.

The family incentive trust is another popular tool among the wealthy. This vehicle encourages and rewards children and grandchildren for doing good things with their lives. Again, life insurance on the grantors and trust beneficiaries can be used to perpetuate the long-term funding of the trust.

Asset protection trusts are also very common in this market. An irrevocable trust offers substantial protection from the creditors of the grantors and trust beneficiaries. Spendthrift provisions can be added to the trust to enhance the level of protection.

Asset protection discussions naturally lead to a consideration of what level of creditor protection is afforded life insurance cash values and/or death benefits in the client’s state.

One final tool for multigenerational planning is the family limited partnership. By placing an asset or a business in this vehicle, clients create opportunities for asset protection, estate freezing, discounted transfers and income shifting.

In addition, owning life insurance in a family limited partnership is an attractive alternative to the irrevocable life insurance trust, as greater flexibility is afforded and no gifting of premiums need occur. This eliminates Crummey powers, Crummey letters, and use of the gift tax annual or lifetime exclusions.

The rich want and need alternatives for estate planning that you may not be recommending currently. Just a little study and reading can enhance your value to wealthy clients and prospects and lead to much larger sales with little or no resistance from the clients’ other advisors.

Patrick A. Lang, JD, CLU, ChFC, CFP, CFS, FLMI, is vice president of advanced sales-case support for Jefferson Pilot Financial. You can e-mail him at [email protected].


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