Just when you thought things could not get any better for transferring wealth during one’s lifetime they did. Barring any new restrictions, limitations or prohibitions, be they proactive or retroactive, the case for making significant wealth transfer is extraordinarily compelling.
Presently, conditions for gifting have never been better in modern times. Under the new permanent tax law we have a $5,340,000 in 2014 unified estate, gift, and generation skipping tax exemption (indexed for inflation) and a 40% combined estate, gift and GST tax rate. Add to that, all-time low federal interest rates, relatively low asset values and no legislation at this time restricting the use of GRATs and/or valuation discounts on family controlled enterprises.
During this time, large gifts to Dynasty and Spousal Access trusts may become much more prevalent. Likewise, gifts and sales to Grantor Trusts, with easier seeding due to the increased gift tax exemption, have the potential to remove vast amounts of wealth. Keep in mind, however, that gifting does not remove the gifted assets from the base of calculating estate taxes. What gets removed is only the appreciation on the gifted assets and any gift taxes paid so long as one lives three years from the date of the gift.
Planning Pointer: Separate spousal access trusts which do not run afoul of the reciprocal trust doctrine under common law may be a great planning technique to use husband’s and wife’s $5,340,000 gift tax and GST tax exemptions. Note, to avoid having the reciprocal trust doctrine apply consider setting up the trusts at different times, using different trustees, varying the beneficial interests of each spouse by giving one of the spouses the right to invade principal but not income, or a 5/5 power, or by giving one spouse a limited power of appointment in their trust. Simply, the more differences between the trusts the better.
Planning Pointer: IDGTs may become the preferred planning vehicle for transferring vast amounts of wealth. With up to $10 million worth of seeding presently available through using husband’s and wife’s gift and generation skipping tax exemptions, a $90 million installment note can now be taken back from a sale to the grantor trust. Moreover, a gift/sale to a IDGT can be done on tax advantaged GST basis.