Читать книгу 2012 Estate Planning - Martin Inc. Shenkman - Страница 37

The generation-skipping transfer (GST) tax is one of the most complex of all tax laws. But in 2012 it may be one of the most important tax rules to use effectively for long-term family wealth accumulation. If you view your planning as simple 2012 gifts, you may be overlooking the incredible power that proper GST planning can provide. In short, the goal for many should be to allocate your GST exemption amount to leveraged lifetime gifts, made to long-term, multi-generational trusts such that these dynastic trusts are entirely exempt from the GST tax (as well as future gift and estate taxes) for as long as feasible. These concepts can be illustrated with the following example.

EXAMPLE: You plan to establish a “complex trust” (a trust that pays its own income tax, other than to the extent that distributions pass income to the beneficiaries). The trust is to be established in your home state for your child and grandchild. You intend to gift $2 million in cash to the trust. The trust ends when your grandchild reaches age 35 and the remaining trust assets are distributed outright to your grandchild.

This type of trust will use gift and GST exemption so it is clearly an approach that takes some advantage of the 2012 planning opportunities. However, this plan is far from optimal in terms of tax, asset protection, control, and other planning objectives. There is no leverage and only limited benefit from the allocation of GST exemption in this plan.

After consultation with your adviser, you instead consider a transfer of $2 million of discounted FLP interests to a grantor trust formed in Alaska. The trust is structured as a grantor trust to achieve the tax “burn” of reducing your estate as you pay income tax on the trust income. The trust is structured to benefit your child, grandchild, and all future descendants. The trust, unless exhausted through distributions, will thus last indefinitely. This will squeeze the maximum benefit out of the GST exemption allocated to the trust. This latter trust will thereby assure that the trust corpus (principal) can remain outside the transfer tax system forever (other than distributions that are not spent). This latter trust takes maximum advantage of leveraging gifts and GST exemption into a true multi-generational trust.

PLANNING NOTE: The key advantage of the more sophisticated multi-generational trust is that it provides far greater flexibility. If the child and grandchild need to spend trust money before the grandchild attains age 35, the more sophisticated trust might function the same as the simple one. But if circumstances are such that other assets can be used first, instead of trust assets, the sophisticated trust provides the flexibility to maximize tax, asset protection control, and other benefits of those assets. The real issue for you to weigh is whether the incremental cost of forming, funding, and maintaining the sophisticated multi-generational trust is worthwhile. What makes 2012 so unique in this decision process is that you are likely committing much more wealth to gift planning in 2012 than in prior years.

For a $200,000 gift, you would likely be unwilling to entertain the cost and complexity of the more sophisticated trust plan. However, for a $2 million gift, is it really prudent not to? For large gifts, if you opt for simplicity instead of flexibility and optimum benefit, don’t be surprised if your professional adviser documents your decision for his or her file, or perhaps even sends you a letter, confirming that you were informed of the more flexible and advantageous options and opted not to pursue them. This documentation might avert a claim by your heirs at a later date that appropriate planning was not done.

The change that has been proposed by President Obama for the GST tax is simple: Limit the number of years for which an allocation of GST exemption to trusts will be effective. All these concepts will be explained in the next section. The impact of this small change on multi-generational wealth transfers is nothing less than catastrophic. The response to this in broad and general terms is quite obvious: Structure 2012 gifts in a manner that takes maximum advantage of GST planning opportunities. That requires the relatively simple formula recommended earlier–leverage as much wealth as possible into GST-exempt trusts that last as long as possible and which have the least leakage. You should be cautious about the incremental risk that discounts might inject into a particular plan and consider steps like a “defined value clause” (limits the gift to the amount in terms of dollars that you intend to transfer) that might minimize some of that risk (see Chapter 5). But since maximizing GST planning is so incredibly important, and since too many consumers, and even some professional estate planners, fail to focus on this planning, the next sections provide an overview and background on the GST tax and help set the stage for the planning techniques and recommendations in later chapters.

The importance of GST planning, in addition to the compounding example earlier in this chapter, can be further illustrated with a series of examples. If Clint Eastwood appeared in a remake of a movie called The Good, the Bad and the Ugly: GST Episodes, the script might read as follows.

GOOD EXAMPLE: Tom Taxpayer has a modest estate but is concerned about future estate taxes and consults his CPA, attorney, and wealth manager. It is determined that Tom can gift away $1 million in 2012. The team offers Tom several options ranging from an outright gift, to a simple local trust in Tom’s home state, to a grantor, GST exempt dynasty trust formed in South Dakota. After weighing the pros and cons, Tom opts for the more sophisticated trust. Tom’s children and heirs multiply. The money in the trust was invested wisely. As the generations of family members multiplied, so did the wealth accumulated within Tom’s trust, protected from the beneficiaries’ creditors (including a spouse in divorce) and forever outside the transfer tax system. Generations into the future, Tom’s wealthy descendants all lived happily, safely, and transfer tax free. But alas in our fairy tale land of tax planning, some taxpayers did not fare as well.

BAD EXAMPLE: Tom Taxpayer has a modest estate but is concerned about future estate taxes and consults his CPA, attorney, and wealth manager. It is determined that Tom can gift away $1 million in 2012, but that if the estate tax exemptions remain at $5 million Tom won’t ever have to worry about the estate tax (let’s assume that Tom doesn’t live in a state that has its own estate tax). The team offers Tom several planning options, but Tom opts to wait and see.

In 2013, the estate tax exemption is reduced to $3.5 million and other changes Tom really doesn’t understand are enacted. One of these includes President Obama’s restriction on the number of years for which GST exemption can be allocated to a trust. Tom again consults his advisers and they offer a range of planning options in 2013 from an outright gift, to a simple local trust in Tom’s home state, to a grantor, GST exempt dynasty trust formed in Delaware. After weighing the pros and cons, Tom opts for the more sophisticated trust. Tom’s children and heirs multiply. The money in the trust was invested wisely. As the generations of family members multiplied, so did the wealth accumulated within Tom’s trust, protected from the beneficiaries’ creditors (including a divorced spouse) and forever outside the transfer tax system—or so they all thought. Generations into the future, Tom’s wealthy descendants thought they were going to all live happily ever after, but out of nowhere sprang the Big Bad GST Wolf who exclaimed the GST exemption Tom allocated had reached the maximum term. While Tom’s heirs all lived happily for 90 years, in year 90 Tom’s trust was no longer GST exempt. Shortly thereafter, Tom’s grandchildren died and half of the trust assets were lost to GST taxes. So only half was left even though the number of Tom’s descendants had grown. Then his great-grandchildren died, and half of the remaining half was lost again to such taxes, again even though the number of descendants had again expanded, the wealth shrunk dramatically. And the trust will continue to be eroded as each generation dies.

But some taxpayers did not fare even this well!

UGLY EXAMPLE: Tom Taxpayer has a modest estate but is concerned about future estate taxes and consults only his CPA. It is determined that Tom can gift away $1 million in 2012. The CPA suggests to Tom, “Hey, why spend money on legal fees, your kids are adults. Just write them a check and call it a day.” So Tom, always happy to save legal fees, writes out a check for $500,000 to each of his two children and smiles in anticipation of a simple, cheap, and easy tax savings. Unfortunately, the excitement of saving legal fees proves too much, and Tom dies. Tom’s children use a much older and wiser CPA who informs them of the consequences of the poor advice their father received, of lack of GST planning, and the tax, divorce, and liability protection that was all sacrificed. Tom’s children sue Tom’s CPA for poor advice. While there are some significant issues as to whether the CPA has any responsibility to the children for the poor 2012 planning advice, the claims and suits rage on. And the lawyer for Tom’s CPA and the lawyers for each of Tom’s children bill and bill, and it is they, not Tom’s heirs, who live happily ever after.

GST planning is so integral to 2012 gift transfers, and not only for mega-dollar-value gifts, that you should endeavor to incorporate the possible advantages of the GST planning opportunities available. The reality is that when considering GST planning, many taxpayers will be put off by the complexity and/or cost. But you should stop and consider how the benefits may dramatically outweigh the costs and other negatives.