Enhanced Quality of Life

Personal Values-Based Estate Planning is concerned not only with how much flows to your heirs, but also how smoothly it moves and how positive the impact it makes on them. A little prior thought in this area can help to reduce many potential problems such as: discord among heirs, inadvertently disinheriting your children through a second marriage, fights over specific items of personal property and inappropriately leaving assets to special needs or handicapped heirs.

All Personal Values-Based Estate Planning is also multigenerational. Good planning can enhance the quality of life for your loved ones for many years and several generations into the future by reducing costs and taxes and by eliminating many potential conflicts and problems. That is why it is most important to think through very carefully what it is you are trying to achieve. One of the most powerful multigenerational planning methods is to use one or more specially designed strategies and properly drafted trusts. Many trust techniques and other advanced planning devices can provide tax and financial leverage as well as help meet your personal values-based desires. A few of these a mentioned here in outline form just to make you aware of them for possible discussion with your estate planning professionals.

A few of the advanced classes of strategies that offer significant potential are:

Estate Valuation Freezing

1. Sale of a Business or Real Estate
2. Installment Sale
3. Private Annuity

These techniques remove the property (usually growing assets) from your estate by selling them to your heirs on the installment plan. This is frequently accompanied by using the Annual Gift Allowance to provide cash to make the purchase.

Recharacterizing Ownership

1. Limited Liability Corporation (LLC)
2. Family Limited Partnership (FLP)

The devices are often used to move property out of your estate (frequently at a substantial valuation discount) while allowing you to retain control over the management. They are especially useful for family-owned businesses or other non-marketable property.

Split (Discount) Gifting

Family Gifting:
GRATs, GRUTs, GRITs AND QPRTs
Charitable Gifting:
CRATs, CRUTS, and CLAT

Know the language of gifting - very generally these terms mean:

G = Grantor, which means it is a family gift.
C = Charitable, which is obvious
R = Retained for family gifts and Remainder for charitable gifts
A = Annuity means a regular series of cash payments being made to the beneficiary
U = Unitrust means a series of cash payments to the beneficiary based on a percentage of the value of the trust
I = Income, in a GRIT means income to the grantor
L = Lead, in charitable gifting it means a series of payments made to the charity over a fixed
period of time

All of these devices include two parts that serve to determine their gift, estate and income tax status.

The Retained (or sometimes Reversionary) portion, which the portion is kept by the grantor or donor. This stays in the estate and does not count as a taxable gift in family trusts or as a deductible donation in charitable gifting.

The Gift portion, which is charged against the donor for gift and estate tax purposes in family gifting or is deductible in charitable gifting.

This is a terribly over-simplified rendition of the rules (so please forgive me.) Always remember the basic rule:

The exact values and tax consequences are determined by incredibly complex rules and mathematical calculations. These take into account the term of retention of benefits or the actuarial life expectancy of non-charitable beneficiaries and an assumed rate of interest published monthly by the IRS. As a consequence, the most efficient device depends not only on your values-based intent, but also on the timing and the level of interest rates at the time of the gift. As an example: Jacqueline Kennedy Onassis’s multi-million dollar estate was able to virtually eliminate current estate taxation by the judicious use of a Charitable Lead Annuity Trust (CLAT). This was due to the unusually low interest rates prevailing at the time.

Arguably the most popular charitable gifting strategy is the Charitable Remainder Unitrust (CRUT). If properly structured in the right circumstance, it can provide substantial leverage in providing a possibly increasing lifetime income while reducing income and estate taxes. When combined with life insurance in an (ILIT) a CRUT could effectively move substantial amounts of assets to future generations and enhance one or more charities as well. A variation called a Net Income with a Makeup Charitable Remainder Unitrust (NIMCRUT) has the potential to act as a sort of do-it-yourself pension substitute. That is, partially tax-deductible donations can be made to the NIMCRUT while the donor is still working, but with no income being paid out. Upon retirement, the donor can begin taking the scheduled income payments with a makeup of the income not paid during the working years. These charitable planning strategies as well as the family gifting strategies can be very effective , but are extremely complex and require a high level of professional planning, drafting and execution.

Personal values-based planning means getting your money where you want it to go in ways that foster your values system. It is important to realize that every decision involves trade-offs such as tax saving for control and access. It is worthwhile to let your to Let Your Values Be Your Guide, however, there are frequently issues of family dynamics that can frustrate your efforts. This is another important aspect of such planning that is frequently overlooked. Many people just assume that their estate planning documents will accomplish what was intended. Here are a few of the issues that can disrupt the best-laid plans are:

Stepchildren from a second (third, etc.) marriage who might inherit (contrary to your desires) from your surviving spouse to whom you left everything.

• Discord among heirs possibly leading to contesting a Will or trust.
• Alienated children whom you want to consider, but who might cause discord.
• A subsequent marriage of a surviving spouse who inadvertently disinherits your children by leaving all to the spouse in a subsequent marriage.
• Fights among heirs over specific items of personal property.
• Unsophisticated heirs who might be unable to manage a large inheritance.
• Heir’s loss of their inheritance through a bad marriage, lawsuit or inept management.
• Inappropriately leaving assets to special needs or handicapped heirs thereby disrupting entitlements.

Most of these and many other potential problems can be resolved (or at least mitigated) by thinking it through and intelligent advance preparation. For instance, issues of leaving specific items of personal property can be handled by keeping (and updating) a Letter of Last Instructions with your Will or Living Trust. A blank sample of a Letter of Last Instructions you can use is available in the Resources Section on pages 45 and 45.

For more on this area see the paperback book: Beyond the Grave: the Right Way and the Wrong Way Of Leaving Money to Your Children (and Others) revised edition written by Gerald M. Condon and Jeffrey L. Condon, two lawyers who have seen it all. Harper Books (2001) -- $14.00. See also Resources Section page 46.

As you consider the multigenerational aspects of planning, you need to review your values-based plans for all living family members, and maybe some yet to be born. In some instance, you may want to provide for parents or other older relatives. At the same time, you may be concerned with the educational plans for grandchildren or nieces and nephews. In still other instances, you may be aware that your own futures inheritances will only complicate your already difficult estate plans.

It is helpful to draw a chart of your family tree of living relatives (and perhaps some potential new generations). This frequently includes not only your own parents, spouses and children, but also stepchildren, aunts, uncles, nieces and nephews. By drawing it out on paper and carefully examining it, you may see possibilities you had not thought of before.

This could give rise to many additional potential planning techniques that may reduce taxes, maintain control and enhance long-term quality of life for the family over multiple generations. These could include:

• Reregistration of property
• Suggested Rewriting of the estate plans for older generations to enable generation skipping
• Enabling Post-Mortem strategies
  • Qualified Disclaimers
  • QTIP (or Reverse QTIP) Elections
• Establishing Generation Skipping Trusts (being aware of Generation Skipping Taxes)
  • With Irrevocable Life Insurance Trust (ILIT)
  • With Creative Beneficiary Designations
  • With Roth IRA to stretch income and growth over 50 or more years
  • Reverse QTIP Elections
• Building Dynasty Trusts to move assets over several generations
  • Rule against Perpetuities
  • Alaska (and other states) trusts situs
  • Asset Protection Trusts
    • Domestic
    • Offshore