Beth Kaufman Discusses Tailoring Estate Planning Techniques to Client Needs

Tax Analysts

Estate planners eager to help their clients make the most of the temporarily doubled estate and gift tax exemption have a daunting array of planning techniques to pick from with no one-size- fits-all solutions.

“We’ve got a whole bunch of options and it’s not possible to say, ‘Oh, this is the best estate plan, this is clearly what you want to do,’ because there are pros and cons to all of these options,” Beth Shapiro Kaufman of Caplin & Drysdale, Chtd. said June 25 at the American Law Institute Continuing Legal Education estate planning conference in Madison, Wisconsin.

One of the most pressing questions for estate planners is how to ensure their clients can benefit from the doubled exemption before it expires. But all except the ultra wealthy would have to relinquish everything they own to exceed the $11.2 million cap for individuals and $22.4 million cap for couples, Kaufman said. “They don’t want to impoverish themselves just because Congress gave them bonus exclusion,” she said.

Kaufman’s first recommendation was to create spousal lifetime access trusts (SLATs), which enables the taxpayer to “give the money away without really giving it away” by making the surviving spouse one of the beneficiaries of the SLAT.

Another way donors can use up the estate and gift tax exemption amount without fully relinquishing access to assets is through a qualified terminable interest property (QTIP) trust. Under section 2519, a gift of any part of a QTIP trust triggers a gift tax on the entire trust, Kaufman explained, and while that’s usually an outcome that estate planners want to avoid, when used this way, it allows the client to make a gift equal to the full value of the trust, so that the bonus exemption amount is locked in. Then, because the actual gift consisted of only a small percentage of the trust’s assets to the donor’s children, the rest of the trust’s assets remain in place and the surviving spouse still receives all the income from the trust.

Kaufman said the theory behind this technique is that the QTIP trust’s assets are included in the surviving spouse’s estate under section 2036, and that section 2036 has an offsetting provision that allows any gift tax paid on the assets to be subtracted. “You get to exclude what you already made a gift of during life, thereby locking down use of your bonus exclusion in 2018, even though you’re dying after 2026, and the only part that you actually pay tax on after 2026 is the appreciation on the property,” she explained.

This method is “a little iffier” than the SLAT approach, according to Kaufman. She also said that it’s “not terribly efficient” because it fails to get appreciation on assets out of the estate. But because it can be used by a surviving spouse who is already the beneficiary of a QTIP trust, it’s “nice to have a technique in our quiver for that person.”

For the full article, please visit Tax Analysts’ website (subscription required).

Excerpt taken from the article “Down the Rabbit Hole: Estate Planners Hunt for New Techniques” by Jonathan Curry for Tax Analysts.


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