GIFTING AND LEGACY PLANNING

Gifting trusts

When you want to share the benefits of your wealth with the people you care about, you can choose from a number of options designed to provide income and support to your family and future generations in a tax-efficient manner.

Generation-skipping trusts

These trusts allow you to build and protect your legacy for future generations while minimizing the transfer tax consequences. Assets in the trust are subject to federal estate and gift taxes (if at all) only once - when they are transferred to the trust. The trust can also be exempt from the generation-skipping transfer tax if the donor's exemption is properly allocated.

 
  • Provide income and support to future generations.
  • Leave assets to grandchildren without being subject to federal transfer taxes when assets pass from the trust to the grandchildren.
  • Protect assets from potential creditor claims against trust beneficiaries.

In addition, Delaware Administrative Trusts allow you to take advantage of the favorable regulatory environment and trust laws in that state to further maximize your gifting strategies. This type of trust functions similarly to a generation-skipping trust, but the trust can last (and thereby extend benefits) indefinitely, rather than terminating and distributing assets outright to the next generation.

 

Irrevocable life insurance trusts

Life insurance can be a versatile tool in your overall financial strategy, and a common way to maximize its benefits is by combining it with an irrevocable trust. With an irrevocable life insurance trust, the trust is the owner and beneficiary of the insurance policy on your life. So the death benefit passes to the trust and is not part of your taxable estate. You can use the assets to offset wealth transfer taxes, or to purchase assets from or lend money to the estate, thereby avoiding a forced sale.

Grantor-retained annuity trust (GRAT)

GRATs can be a useful tool for giving to those you care about during your lifetime while minimizing federal gift taxes. The goal is for the value of the assets transferred to the trust to be as low as possible, but likely to appreciate over a short period of time. Common examples of assets for which you can maximize benefits in this way include:

 
  • A stake in a privately-held company that is likely to go public or be sold.
  • Hedge funds, private equity, stocks or real estate.
  • Interest in a closely-held business before it is sold.

You retain the right to receive an annuity from the trust for a set period of years, and at the end of the trust term, the remaining balance can be transferred free of federal gift tax to your beneficiaries.

 

Intentionally defective grantor trust (IDGT)

IDGTs are a sophisticated wealth-transfer strategy that allows you to transfer the appreciation of assets to your beneficiaries, free of gift and generation-skipping transfer taxes. IDGTs can be beneficial in situations when:

 
  • The assets are likely to appreciate significantly in value over time.
  • The assets generate strong cash flow.
  • You hold a significant stake in a company that is contemplating an initial public offering (IPO).
  • You want to transfer a closely-held family business to others and provide creditor protection for your beneficiaries.

Let Bank of American Trust Services help you determine which gifting strategies and trusts can give the most lasting meaning to your wealth.

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