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Miami Probate and Estate Administration Law Blog

Estate planning tools: Using the GRAT as a tax shelter

An accidental loophole in American estate planning legislation could help the nation's richest citizens avoid billions of dollars in taxes. Billionaires in Florida are often required to pay outrageous 40 percent estate or gift taxes on their assets. Now, though, a newly popular type of trust is providing a critical tax shield that could have preserved about $100 billion in wealth since the year 2000. This important estate planning tool has been called a "mockery of the tax code," but it is benefiting scores of wealthy Americans who are committed to smart estate planning.

Politicians have been attempting to close the loophole since 2009, but they have not succeeded. The wealthy Americans are using provisions related to the grantor retained annuity trust, or GRAT. The GRAT is a useful estate planning tool that allows wealthy Americans to transfer millions to their beneficiaries without paying estate tax or other penalties. In fact, the GRAT was created in response to another type of trust that had been characterized as abusive to the tax code.

New type of trust protects assets for Florida heirs

Even though the federal estate tax is affecting a smaller percentage of people every year, those with larger amounts of assets are more likely to suffer the ill effects of this particular fee. New federal estate tax rules protect individuals estates that are valued at $5.2 5 million or less, and couples' estates that are valued at less than $10.5 million. However, when estates passed those threshold, the estate tax rises to an overwhelming 40 percent. Now, a new type of legal protection has become available for those with large estates, allowing for additional shielding from the massive 40 percent tax.

This new estate administration tool is known as the grantor retained annuity trust. This particular type of trust is advantageous for people who are looking to pass down assets to heirs in the long-term. In essence, creators of this type of trust are making gifts themselves. Assets can be put into the trust for a minimum of two years, though the lifespan of the trust is up to the creator's discretion. At the end of that period of time, the trust can return the asset to the trust creator or the effort can be passed down to a beneficiary. If the asset increases in value while it is held in trust, gains can be passed down to beneficiaries without a tax penalty.

Americans leave smaller inheritances than others

Even though America is a land of economic prosperity, our aging population lags behind elders in other countries when it comes to inheritances. Most Americans intend to leave behind about $177,000 for beneficiaries and others who would inherit property; compared to several other nations, that is a pittance. In fact, Floridians might marvel at the idea that most Australians plan to leave $502,000 to their heirs. So, what is the difference between us and them? Experts say that a variety of social factors could be leading to lower inheritances. Those factors include estate tax and the growing cost of medical care in the United States.

Residents of five countries were more likely to leave high inheritances for their beneficiaries. Those included France, Australia, Singapore, the U.K. and Taiwan. The commonality among these: a national health care system. Many experts say that increased spending on health care in old age may actually be limiting our ability to leave money to our children or heirs. Shockingly, 25 percent of Medicare recipients spend more than their total assets on medical costs alone during the last five years of their lives. Medicare does not pay for end-of-life care, such as nursing home residency or home-care services.

Keep paperwork in order to distribute estate assets properly

Many Florida residents do not think they are old enough to worry about estate planning. Surprisingly, nearly 80 percent of aging Americans do not even consider themselves "old" until they reach age 80. Although we are living longer, more fulfilling and more exuberant lives, it is important to remember that you must have a plan to distribute estate assets as you reach your later years. Although you may have a very basic estate plan that includes a will, additional measures may be needed to ensure that your property is properly distributed after your death.

Different types of accounts require different paperwork to be included in an estate plan. Everyone who holds a traditional non-pension taxable bank account should remember to have a transfer-on-death form on file with the company that delineates who will receive the contents of the accounts. Unlike IRAs and other retirement holdings, these accounts actually receive a day-of-death cost analysis, so executors must understand how to fill out and file this paperwork. The executor of a will that includes such accounts must be sure to list the price of each investment on the individual's actual date of death. This commitment to detail may actually help those who are receiving the inheritances, as capital gains tax liability can be reduced if the asset lost value.

Quick tips for building your Florida estate plan

If you are one of the scores of Floridians who has put off creating your estate plan, you are not alone. In fact, scores of other baby boomers like yourself have waited to draft these important documents, sometimes with dire consequences. It is never too early to think about estate planning, which can make a noticeable difference in facilitating a smooth transition after your death. Many financial experts even view estate planning as an act of love - you would not want your beneficiaries to end up paying extra taxes, for example. Today, we bring some tips on building a proper estate plan, no matter your life stage.

Before you embark on your estate planning journey, consider choosing someone to legally represent you in case you are incapacitated. This person, who is said to have power of attorney, is also approved to act for you legally with regard to financial matters. In many instances, people will choose their adult children to act in this capacity, but others can also serve in this role.

Keeping your kids from overspending their inheritance

You have saved up a significant amount of money for your Florida heirs, but you are concerned about their ability to spend their money wisely. For those who stand to inherit property, good financial foresight is a must. That is why about one in three benefactors is drafting an estate plan that will reduce the likelihood of financial mismanagement by their beneficiaries. Benefactors who want to make sure that their estate is handled wisely can take some early action to guarantee success.

First, be sure to communicate your inheritance plan to your beneficiaries. The first time your child or heir learns about an inheritance should not be at the reading of your will; rather, this should be an ongoing conversation. Financial counseling might be helpful if your children stand to inherit more than 50 percent of their annual income. Additionally, benefactors can choose to gift some of their estate before death, giving their heirs some practice with managing large sums of money. Each person can gift up to $14,000 annually without reporting the amount to the IRS.

Develop Florida estate plan early for best results

Do you think that estate planning is only for the wealthy? Think again. Almost all Florida residents could benefit from the expertise provided by an estate planning professional who can help you understand the implications of local law when it comes to your assets. No matter how many assets you have, you need to have a plan for their distribution after your death. Without this critical forethought, your family members could be left with an estate in disarray, causing them endless stress and anxiety.

Help your family understand your estate plan by having uncomfortable discussions as early as possible. No one wants to spend time talking about their own death, but the details of your estate plan need to be clearly communicated to your family members. Solicit the assistance of a qualified elder law attorney along with help from health care professionals and even financial planners. You want to think ahead to consider changes that could occur in both your health and financial statuses.

Communication key to Florida estate plans

Do your kids know where your will is?

It is a scene that Florida attorneys see played out too many times in their local offices. Parents often leave their adult children without any idea about their final wishes, even neglecting to tell them where to find their estate planning documents. The implications of that failure are staggering, as relatives can be subjected to serious stress because of failed communication. In one case, an attorney tells the story of a man who failed to adequately plan, leaving his sister as the sole executor of his estate without any direction. The man died at age 60; after his passing, his sister was forced to spend months digging to account for all of the man's assets. She only found out about one mutual fund in Florida 5 years after the man's death.

Florida residents escape income, estate tax burdens

If you are a Florida resident working on your estate plan, you are probably already aware that careful maneuvering may be required to avoid a massive tax burden for your heirs. It is important to remember that state and federal tax differ not only based on how much you own, but it also relates to where you live. With that in mind, the experts at financial magazines have compiled a list of states where dying is radically more expensive than in other locations. Estate planners should remember that 19 states impose independent estate taxes on their residents. Even those who live in states without these taxes in place should tread with caution, as many of these regulations are subject to sudden changes.

In Florida, the primary deciding factor for determining estate tax eligibility is residency status. Florida, one of the few states without either income or state death taxes, is particularly desirable as a residence for a variety of reasons. However, some Florida residents have run into difficulties when attempting to execute an estate plan after a relative's death. In these cases, professional attorneys can help argue for residency in Florida, easing the state tax burden for affected relatives.

Avoiding common estate missteps

Many Florida residents may have put off estate planning because they find it intimidating or overwhelming. Although crafting an estate plan can be a rather dry activity, it is absolutely essential for those who anticipate leaving assets to loved ones or other parties. Probate attorneys throughout the state have seen scores of individuals make serious mistakes with their estate plans; you do not have to be one of them. Today, we will discuss common misconceptions and errors that occur within estate plans, providing you with the information you need to craft the best document for your situation.

Some Floridians think they are too young to need an estate plan. That can be a huge mistake. Yes, even healthy Americans in their 30s are known to pass away - what happens if you have not made any provisions for your spouse and children? Your will is much more than a document that will help your family divide up your property; it can also provide information about your last medical wishes, determining how you will be treated after a catastrophic accident. All adults can benefit from a comprehensive estate plan that is thoroughly reviewed by an attorney and financial planner. You are never too young to plan for the future.