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Trusts Used in Advanced Estate Planning with Jeff Stephens

In our episode, “Advanced Estate Planning, Charitable Strategies, and a Whole Lot of Acronyms,” we went over a handful of trusts that Jeff Stephens has dealt with in high net worth, advanced planning.


These trusts were used for VERY specific reasons; it is critical that you seek your estate planning professional’s advice, specific to your unique circumstances, so that they can identify the right strategy for you. With that said, here are four of the trusts discussed in our episode, in the order they appeared:


Intentionally Defective Grantor Trust (IDGT) An irrevocable trust where the grantor retains controlling interest in the trust owned assets, BUT they are treated as an asset separate from the grantor for estate planning purposes. The grantor can either gift or sell assets into the IDGT. By selling the asset and utilizing a promissory note, the grantor avoids capital gains taxes on the asset sold and can create a revenue stream coming back to him or her while they are alive. 


Beneficiary Defective Inheritor’s Trust (BDIT) Much like an IDGT except the client who intends to utilize the trust is not the one who sets up the trust. Instead, someone else (parents, relative, etc.) establishes the trust, lists the client as the beneficiary, and seeds a nominal amount into the trust. The client/beneficiary has total control of the BDIT and can sell assets into the trust, thus separating said asset from their estate and possibly protecting it from creditors. This allows a client who has a potentially rapidly growing asset to get the same benefits as the IDGT while remaining the beneficiary to the assets placed in the trust. 


Grantor Retained Annuity Trust (GRAT) This allows you to gift a significant amount using up little (and possibly no) gift tax cost, all the while retaining the ability to receive an income stream for a period of time. The rough “back of the napkin” math (as Josh referred to it in our episode) was that, out of $1,000,000 established in the GRAT, you may retain the rights to receive $800,000 over the specified term. This means your actual gift amount is only using up roughly $200,000 of your lifetime gift exception. Depending on the growth and management of the assets, the $1,000,000 originally used to set up the GRAT may grow to $1.6 million.


In this rough (and I mean very rough) estimate, the end result would be $1 million going into the GRAT, $800,000 cash flowing back to you over a specified amount of time, beneficiaries receiving $800,000, but you only use $200,000 of your life time gift exemption. 


Qualified Personal Residence Trust (QPRT) Personal residences or second homes potentially carry two unfavorable threats: pushing your estate beyond the estate exemption and attack from creditors. Some states have incredibly low homestead exemptions which makes a personal residence a HUGE target for creditors. Example: California has a $75,000 homestead exemption, $100,000 if you’re married, and $175,000 if you’re over 65. For larger homes around the $4-6 million range, it may be beneficial to look into how moving your residence out of your estate can impact your estate plan. WARNING: These trusts carry some risks, as well, and can be very unfavorable if not properly planned consistently with your other estate, financial, and tax strategies. SEEK COUNSEL! 


The theme of seeking counsel will run heavy in our blog posts due to the fact that WE ARE NOT ATTORNEYS! We have worked with some of the brightest minds in charitable planning, asset protection, offshore trusts, and more, but we only know a fraction of what the professionals know. 


Get a referral, describe to them your needs, and let them guide you to the appropriate vehicle.

 

For contacting Jeff Stephens directly regarding what you’ve read today, he can be reached by email at jstephens@gvmlaw.com or by phone  at 916.789.3900. 


If you want more general information regarding previous episodes, our Tech Rolodex, or topics you think we should research and cover, reach out at info@wealthpreservationpodcast.com.


This information is provided for educational purposes. You should not construe any such information or other material as legal, tax, investment, financial, or other advice. 

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Mark Seither: 530-613-2745  mseither@kingsview.com