I had an endowed professorship at UC-Berkeley that supported my research, so I know how important these funds are. Richard Meese (’76 MA L&S, ’78 PhD L&S) |
|  | | The following tax-wise considerations will be valuable to you for preserving family wealth and transferring it to succeeding generations or charities of your choice. Knowing about these opportunities is essential to sound planning. |
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| Family Limited Partnership (FLP) | | | The family limited partnership is an arrangement that can facilitate gift-making to heirs during life and still maintain control over the assets placed in the FLP. It is used to consolidate and preserve family assets such as a family business or real estate. Parents are usually general partners, and limited partnership interests are transferred to children and possibly grandchildren at discounted values. This allows for effective management of assets into the future and avoids gift and estate taxes. Charitably motivated individuals can use FLP units to benefit charity. |
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| Charitable Lead Trust (CLT) | | | A charitable lead trust provides income distributions to charity annually; and at the end of the trust period the principal returns to the grantor's children or grandchildren, generally producing significant transfer-tax savings. You are, in essence, lending assets to a charity important to you for a period of years. Lead trusts can be funded with cash, marketable securities, closely held securities, or income-producing real estate and can be created during your lifetime or through your estate at death. Because your beneficiaries will avoid taxes on any future appreciation, this could be a very effective "estate freeze" technique for assets that are projected to grow in the future. |
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| Grantor-Retained Annuity Trust (GRAT) | | | Essentially, a grantor-retained annuity trust is a noncharitable lead trust. The donor retains the right to receive an annuity for a fixed period of years, with the principal passing to heirs after a stated period of time. For tax-planning purposes, you are treated as though you have currently completed a gift of the present value of this future gift. Provided you survive the fixed period, assets can pass to heirs at a significantly reduced transfer-tax cost. Some donors utilize this planning option to make charitable gifts of some or all of the annuity amount they receive from the GRAT each year. |
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| Defective Grantor Trust | | | A defective grantor trust allows a donor to make irrevocable and completed gifts to family members through a trust while remaining responsible for the taxes due on both income and capital gain generated by the trust. Most tax advisors believe that under the current law payment of income tax and capital-gain tax is not considered an additional gift. |
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| We're Here to Help | | Wealth-preservation planning allows for the effective use and transfer of assets by, and for, your family, as well as the charities that are meaningful to you. Deciding how much you need for yourself, how much to leave your heirs, how much tax will go to the IRS, and how to benefit charity leads to effective distribution of wealth using a variety of techniques chosen by you.
Our third and final installment in this series, Transfer Techniques III, will discuss additional strategies that are available to you as you strive to meet your family wealth transfer objectives.
Please contact us if we can be of any assistance in this process. |
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