Top 10 Estate Plan Tools to Use Now and Probably Into the Future
National Underwriter (Life/Health) (02/19/01) Vol. 105, No. 8 p.17; Underwood, Gary

National Underwriter magazine contributor Gary Underwood offers 10 estate planning techniques planners can use now and maybe in the future. The first technique is the "AB" trust. AB trusts are supposed to minimize federal estate taxes through optimum use of the marital deduction and the unified credit. Another application that bears consideration is the lifetime gift. This tool is best suited for individuals with estates valued in excess of $1 million, and consequently subject to significant estate tax rates due to future hikes of estate values. Under this plan, lifetime assets transferred to heirs will freeze at their current levels for estate tax purposes. Still another viable estate plan option is the irrevocable life insurance trust (ILIT). Usually with ILITs, the estate owner establishes the ILIT, which in turn purchases a survivorship life insurance policy on the estate owner and his/her spouse. Underwood notes that "having insurance proceeds inside an ILIT is one of the few ways significant assets can be passed to heirs free of all three of the primary taxes." Another technique is called the family limited partnership. This plan looks to lower estate taxes by claiming valuation discounts on assets owned by the family partnership. Charitable remainder trusts carry out dual functions. With these trusts, gifts can be made to charities and assets can be transferred to heirs without having estate taxes taken out. Another commonly used strategy is the grantor retained annuity trust (GRAT). Under GRAT, in exchange for property that the estate owner transfers to the GRAT, the GRAT pays an annuity over a period to the estate owner. Afterward, the trust fund is passed down to the remaindermen. Like the ILIT, the estate owner creates Intentionally Defective Grantor Trusts (IDGT), whose value is exempted from the grantor's estate. IDGTs are used to prevent future appreciation from the estate. An installment sale is yet another method of estate tax reduction. The installment sale is used for spreading out the taxable gain and is usually used in conjunction with IDGTs. Meanwhile, a private annuity is an arrangement that occurs between two parties. When employing this technique, the transferor conveys complete ownership of property to a transferee, who in turn pledges to make periodic payments to the transferor for life. The final estate planning technique is generation skipping transfers (GST). This application is useful for people with estates valued at more than $4 million, and who have children that own estates of significant worth. GSTs, which are made to grandchildren or great-grandchildren, are used to conserve federal gift and estate taxes by keeping property out of the taxable estates of the members of the intermediate generation.


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