Creating an estate plan

Anthony* and Evelyn*, both age 75, came to us for help designing an estate plan. They owned equal portions of their assets, and wanted to pass them on to their children and grandchildren in a tax-efficient way.

First, we guided Anthony and Evelyn through the process of having their outdated wills redrawn to reflect recent changes in the tax law and the increase in the value of their assets over the last decade. We recommended including a “bypass trust” in both wills and funding each one with $2 million, the maximum amount allowed by law, for a combined total of $4 million.

Bypass trusts are designed to shelter assets from federal estate taxes. We structured Anthony and Evelyn’s bypass trusts so that the assets contained in each trust would be transferred to Anthony and Evelyn’s children and grandchildren free of federal estate taxes. Without the bypass trusts, federal taxes could have exceeded 40 percent of the estate’s value. Further, as the assets assigned to the trusts do not transfer to the beneficiaries until both Anthony and Evelyn have died, the bypass trusts can also serve as a safety net for whichever spouse outlives the other.

Second, since Anthony and Evelyn live in a state where the estate-tax-exemption limit is lower than the federal limit, we recommended a number of cost-effective solutions to reduce state estate-tax liabilities.

Third, we advised Anthony and Evelyn that they could reduce their federal taxable estate by making periodic gifts during their lifetime. (The current annual maximum is $13,000 per recipient).

Finally, the couple’s interest in funding a favorite charity, combined with their desire to leave a portion of their estate directly to their grandchildren, led us to recommend establishing a charitable lead trust ("CLT"). CLTs provide an annual income stream to a stated charity for a fixed number of years, after which the heirs named in the trust (in this case the grandchildren) receive the principal of the trust. The CLT gave Anthony and Evelyn the satisfaction of supporting their favorite charity during their lifetime, as well as the discretion to decide when their grandchildren will receive their portion of the principal.

Many people end up paying a great deal more than they need to in estate taxes because their parents or grandparents did not have a well-designed estate plan. Gerstein Fisher was able to help Evelyn and Anthony protect their heirs from significant estate taxes, make periodic gifts and charitable donations during their lifetime, and plan for the financial security of future generations.

*Names and some details have been changed to protect client confidentiality. Your particular situation can differ based on your unique needs and objectives.