The federal estate tax can dramatically reduce the financial legacy that you are leaving behind to succeeding generations. As of this writing the top rate of the tax is 40%, and the exclusion is $5.25 million.
What do you do if you have resources that exceed this $5.25 million exclusion amount? This is something that you’re going to want to discuss with an experienced estate planning attorney who has a background assisting high net worth clients.
There are various different courses of action that can be taken, and the ideal one will vary depending on the circumstances.
One option that you may want to consider because of the fact that interest rates are low is the creation of a “wait a while” trust.
This is the testamentary non-grantor charitable lead trust. To provide a simple explanation, you arrange for the assets that you have that exceed the exclusion amount to be poured into the testamentary trust at the time of your death. Your heirs will receive an initial inheritance that is within the exclusion amount.
You set a term when you create the trust, and you name a charitable beneficiary and a non-charitable beneficiary. The present value of the trust is calculated by the IRS using the discount rate or hurdle rate that is in place at the time the trust was created to account for anticipated growth.
The strategy is to “zero out” this value by giving it all to charity over the term of the trust. While this is going on your heirs are “waiting a while” for the rest of their inheritances.
If the assets placed into the trust were to grow beyond the value designated by the IRS at the time the trust was created there would be a remainder at the conclusion of the term. This would become property of the non-charitable beneficiary and no further taxes would be due.
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