Gifting

Gifting can be accomplished by two different methods. The first method is the annual gift exclusion of $11,000 to any number of donees. If the donor is married, the donor's spouse may contribute an additional $11,000 per donee. The second way is to utilize, in whole or in part, your exemption. If you use any amounts of your exemption, a gift tax return is filed, but no tax is paid until the sum of the gift exceeds your exemption. Unlimited gifts for U.S. citizens may be made between spouses without the use of a gift tax return being filed.

Charitable Remainder Trust (CRT)

A CRT is a technique where you transfer a highly appreciated asset to an Irrevocable Trust. You retain the income for life, with the remainder of the trust going to a charity upon your death. You can be the trustee of this trust. An advantage of the CRT is that capital gains taxes can be deferred, and a charitable income tax deduction is realized by the gift to a charity.

Life Insurance Trust (LIT)

Large life insurance policies should not be owned by the client. Life insurance is part of your estate for estate tax purposes. An irrevocable trust with life insurance is used primarily for the purposes of providing money to pay the estate taxes on an extremely tax-favored basis. Annual exclusion gifts can be used to fund annual premiums.

Grantor Retained Annuity Trust or Unitrust (Grat or Grut)

A GRAT or GRUT is a technique that can be used to transfer assets to heirs at a substantial discount. The trust is created to last for a term of years and the grantor retains income (at least 5%) from the trust annually. The difference between the GRAT and the GRUT is that the GRAT is a fixed dollar amount, the GRUT is a fixed percentage of the value of the trust.

Qualified Personal Residence Trust (QPRT)

A QPRT is a trust that allows owners to transfer their personal residence and/or vacation home to their children while continuing to reside in them. The owner transfers the property into an irrevocable trust for a period of years, not to exceed his or her life expectancy. The owner retains the right to live in the house, and at the end of the term, the property belongs to the children.

Family Limited Partnership (FLP)

A FLP is an estate planning technique that can be used to reduce both estate and income taxes. A Partnership Agreement is created having both general and limited partnership interests. Assets are then transferred to the partnership in a tax-free exchange. The donor retains the general partnership and the limited partnership interests. The general partner controls the day-to-day activities of the partnership. The donor begins to gift the limited partnership interest to family members, using the $11,000 annual exclusion and/or the exemption amount.

Family Income Trust (FIT)

Also called Generation Skipping Trusts, these trusts permit inheritances to be held and managed by heirs, and provide income and principal as needed for life. These trusts can protect against creditors and divorce courts. They can avoid estate taxes and can last for several generations.

Medi-Cal Trusts

Individual planning for incapacity or long term care may incorporate an irrevocable trust as part of your estate plan. After an eligibility period, a Medi-Cal Trust will allow for assets to not be counted in qualifying for Medi-Cal.