A common tax strategy for married couples who have amassed significant financial assets is to create a credit shelter trust (CST) in order to maximize the federal estate tax exemption.
Conferring a power of attorney (POA) can be a legal event but doesn’t usually involve a lawyer. Instead, designating a power of attorney gives the named person the authority to make decisions on behalf of the person who made the designation.
A Grantor Retained Annuity Trust (GRAT) is when a grantor wants to transfer the appreciation of an asset to an heir(s) while also reducing the value of the asset that might be subject to estate or gift taxes. It is generally used by individuals as a possible tax shelter for a high-value asset(s) they want to pass to a beneficiary.
Financial planning is imperative to make sure your finances are in order while you are alive, and also to convey your wishes for assets after your death. However, a 2022 study showed that only 29% of surveyed Americans have a written financial plan. With the uncertainties in life, if you don’t have a plan, now is the time to get started.
Affluent couples with large estates may choose to set up credit shelter trusts in an attempt to preserve generational wealth and pass high-net-worth assets onto their heirs without having to pay estate taxes.
Intentionally Defective Grantor Trusts (IDGT) are when a grantor transfers an asset, or assets, into a trust where the asset and any growth are effectively removed from the estate, but the grantor still pays income tax. Effectively, the grantor’s purpose is to potentially grow the inheritance “income tax-free” for their heirs by paying the income taxes as the asset grows while they are still alive. By setting up an IDGT the grantor is “intentionally” triggering the need to pay income tax on the asset.