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