If you are a non-U.S. taxpayer looking to build a business or invest in the U.S., it’s essential that you plan carefully before you invest. Failing to plan before you invest may have catastrophic consequences for your family wealth. An irrevocable “Foreign Grantor Trust” may be an appropriate solution.
Key Features of an Irrevocable Foreign Grantor Trust
• Is an irrevocable trust created in a U.S. tax-friendly, private trust jurisdiction with no separate state-level income tax. Common choices include Wyoming, Nevada, Delaware, South Dakota, etc.
• Allows you to place assets into a private, protected structure established on the terms you select for any number of potential beneficiaries, often including you, your spouse or partner, children, other family members, or others.
• The trust is treated as you for U.S. income tax purposes, which has significant income tax advantages under the U.S. tax code. (For example, capital gains on the sale of U.S. securities are exempt for foreign grantor trusts.)
• Non-U.S. source income is not subject to U.S. income tax when earned but will be subject to U.S. income tax if distributed to a U.S. person.
• Is a “completed” gift for federal transfer tax purposes, meaning that all future growth on those assets is out of your U.S. taxable estate … and the increase in asset value can avoid estate tax for many generations.
• Allows you to maintain control over most investment decisions concerning the assets held in the trust and to remove and replace other decision makers concerning the administration of the trust.
• Is one of many potential strategies that can be combined into a comprehensive family wealth strategy set.
A deeper dive:
An irrevocable foreign grantor trust is designed to be taxed as if it’s you, the trust creator, for U.S. federal tax purposes. You establish the trust in a “U.S. destination jurisdiction” and transfer property to the trust. The property is administered by the trustee in that jurisdiction for the benefit of the trust beneficiaries you choose – which may include yourself and your loved ones – under the laws of the selected jurisdiction. Depending on the jurisdiction selected, the design of the trust, the administration of the trust, and the source of the property placed in the trust, a foreign grantor trust has several key benefits.
Income Tax Opportunities
While the advantages of an irrevocable foreign grantor trust usually dramatically outweigh the disadvantages, you should understand both before proceeding with the strategy.
Irrevocable Foreign Grantor Trust Disadvantages:
U.S. source income is – and always will be – subject to U.S. income tax unless an exemption applies. Significantly, under the U.S. tax code, U.S. capital gains (other than for the sale of U.S. real estate) are not subject to U.S. tax if held by a non-U.S. (i.e., “foreign”) person or foreign grantor trust. The estate tax consequences are quite dire for a non-U.S. person with U.S. assets, as there is only a $60k exemption from estate tax – i.e., a non-U.S. person is generally subject to a 40% tax on the value of their U.S. assets above only $60k.
The trust must be administered by a trustee in the destination jurisdiction. This requires extra paperwork and adds annual expenses for trustee fees, typically in the range of $5,000 to $15,000 per year.
Irrevocable Foreign Grantor Trust Advantages:
Non-U.S.-sourced income held in a U.S. foreign grantor trust is not subject to U.S. income tax when earned. However, this income is subject to U.S. income tax if distributed to a U.S. person.
When structured properly, assets in a foreign grantor trust typically enjoy significant protection from your future creditors (and the creditors of other trust beneficiaries).
The Settlor of the trust (that’s you as the person establishing the trust) selects the Trustee and the individual or committee who is empowered to determine when and in what amounts to distribute property from the trust.
Foreign grantor trusts are usually very private. The trustee of the trust is responsible for preparing accountings and tax returns, and the Settlor of the trust and the beneficiaries are typically not disclosed other than to the trustee and tax authorities. They often provide a high level of “curiosity protection” by removing individual beneficiaries’ names from public view.
Unlike some other trust structures, you can direct who will make all investment decisions concerning trust property as the Investment Trust Adviser.
Even though the trust is “irrevocable,” it remains flexible. Advanced trust design techniques allow the trust to evolve as laws and circumstances change.
Irrevocable Foreign Grantor Trusts are advanced techniques. They are complex and powerful, and they aren’t right for everyone. But in the right circumstances they are compelling solutions to complement a more comprehensive tax efficient legacy plan.
If you would like to discuss whether an irrevocable foreign grantor trust will help you accomplish your family’s legacy planning goals, please reach out to your Client Ambassador to discuss.
This information is intended for general educational purposes only and should not be construed as legal or investment advice.
On July 10, 2023 California Governor Gavin Newsom approved Infrastructure and Budget Legislation.The bill, SB 131, relates to taxation and includes several amendments to the Government Code, Revenue and Taxation Code, and Welfare and Institutions Code and thus changes the law in California to cause income in INCOMPLETE non-grantor trusts to be counted as California income. Importantly, the new law is limited to non-grantor trusts that are “incomplete” for gift and estate tax purposes. The law does not apply to COMPLETED GIFT non-grantor trusts.
California clients with Incomplete Grantor Trusts: It’s time to replan.
Here’s what you need to know.
Estates and trusts under the current Personal Income Tax Law are subject to taxation on their taxable income, similar to individuals. This is true under both state and federal tax law. If a trust is classified as a “grantor trust,” where the grantor or another individual is treated as the owner of a portion of the trust, then the trust’s income, deductions, and tax credits are included in the grantor’s taxable income. The grantor will report the trust’s income on his or her personal income tax return and will be responsible for payment of tax liability.
The proposed bill is RETROACTIVE taking effect on January 1, 2023, and would include the income of an “incomplete gift nongrantor trust” in the gross income of the grantor. This means that if the trust’s income would have been considered in the grantor’s taxable income had it been treated as a grantor trust, it will now be included in the grantor’s gross income.
However, certain conditions can exempt a trust from this provision, such as the fiduciary making an irrevocable election to be taxed as a resident nongrantor trust, as specified in the bill.
Starting from January 1, 2023, the new Section 17082 is added to the Revenue and Taxation Code, which outlines the treatment of income from an incomplete gift nongrantor trust for qualified taxpayers.
More specifically…
For taxable years beginning on or after January 1, 2023, the income of an incomplete gift nongrantor trust will be included in the gross income of a qualified taxpayer. The inclusion will be to the extent that the trust’s income would have been considered in the taxpayer’s taxable income if the extent of the trust were treated as a grantor trust under Section 17731.
There is an exception to the income inclusion. The income of an incomplete gift nongrantor trust will not be included in a qualified taxpayer’s gross income if the following conditions are met:
The fiduciary of the trust files a timely original California Fiduciary Income Tax Return and makes an irrevocable election to be taxed as a resident nongrantor trust under Chapter 9 (starting from Section 17731). This election must be made using the prescribed form and manner by the Franchise Tax Board.
The incomplete gift nongrantor trust is considered a nongrantor trust according to Chapter 9 (starting from Section 17731), which in essence follows the Federal rules.
At least ninety percent of the distributable net income of the incomplete gift nongrantor trust, as per Chapter 9 (starting from Section 17731), is distributed or treated as being distributed to a charitable organization defined under Section 501(c)(3) of the Internal Revenue Code. This includes provisions like Section 17752 or 17731(a) within Chapter 9 (starting from Section 17731).
Definitions for the Infrastructure and Budget Legislation SB 131 Bill
“Incomplete gift nongrantor trust” refers to a trust that meets two conditions: (A) It doesn’t qualify as a grantor trust as defined by Subpart E of Part I of Subchapter J of Chapter 1 of Subtitle A of the Internal Revenue Code. (B) The transfer of assets to the trust by the qualified taxpayer is treated as an incomplete gift under Section 2511 of the Internal Revenue Code concerning transfers in general.
“Qualified taxpayer” means the grantor of an incomplete gift nongrantor trust.
“Resident nongrantor trust” means a trust that is not a grantor trust and where the tax applies to the entire taxable income of the trust based on the residency of the fiduciary or beneficiary as per Section 17742.
California clients: reach out to your Bespoke contact immediately to connect you with a trusted colleague. Those based in California who are interested in Incomplete Non-Grantor Trusts reach out to a Bespoke team member for more information.
This information is intended for general educational purposes only and should not be construed as legal or investment advice.
Trusts are commonly used in estate planning as they allow individuals to modify their relationship with their assets. Irrevocable trusts, in particular, offer various tax advantages, privacy, and wealth protection. However, establishing an irrevocable trust requires surrendering some control over the assets, highlighting the need for a trustworthy trustee. Private trust companies address this by combining the professionalism of a professional fiduciary with family control and involvement.
PTCs are especially beneficial for families with concentrated assets like family-owned businesses or real estate, as they provide expertise and continuity in managing such assets. They also offer scale and flexibility for families with diverse liquid assets, creating pooled investment vehicles to minimize costs and access otherwise unattainable opportunities.
Wyoming is highlighted as a leading jurisdiction for establishing and operating PTCs. The state offers favorable tax laws, including no taxes on income, capital gains, gifts, or estates. It also provides robust privacy and asset protection, keeping details about PTCs and the trusts they manage confidential.
Private Trust Companies: Unlocking Control and Flexibility in Strategic Estate Planning outlines the structure and governance of PTCs, emphasizing the importance of selecting board members and officers carefully. It recommends establishing Wyoming as the situs for PTCs and undertaking ongoing administration and compliance tasks. It also discusses the distinction between regulated and unregulated PTCs, with Wyoming permitting both types.
In conclusion, PTCs offer a powerful tool for strategic estate planning, enabling families to customize their strategies while benefiting from favorable legal frameworks, tax advantages, and enhanced privacy protections.
The information in this blog post is intended for general educational purposes only and should not be construed as legal advice.
How to build trust in an increasingly digital world? With the rapid advancements in technology, the podcast episode: e-State Planning for Bitcoin and Other Crypto Assets explores how trust is both essential and challenging to establish and maintain in various aspects of our lives. Jonathan Mintz, Senior Managing Director of Bespoke Group, delves into the crucial topic of building trust in an increasingly digital world on the “Trust Me” podcast with Kevin Bryce Jackson.
This blog post is a summary of their conversation.
Trust in the Digital Landscape
The conversation is kicked off with discussion surrounding the importance of trust in today’s digital landscape. Jonathan highlights how trust forms the foundation for successful relationships, transactions, and collaborations, emphasizing its impact on businesses, institutions, and individuals.
Trust – Eroding Challenges
Drawing on insights from industry experts and thought leaders, Jonathan and Kevin explore the challenges posed by cybersecurity threats, data breaches, and privacy concerns that erode trust in the digital realm. As well as discussing perspectives on the measures individuals and organizations can adopt to protect their data.
The podcast also delves into the role of trust in the context of social media and online platforms. It examines the spread of misinformation, fake news, and the manipulation of online content, shedding light on the critical need for platforms to prioritize trust and integrity.
Rebuilding Trust
Throughout the episode Jonathan discusses practical strategies for rebuilding trust and fostering transparency. He explores the significance of accountability, authenticity, and ethical behavior in cultivating trust among consumers, clients, and partners. Additionally, the podcast discusses the role of technology itself in facilitating trust, such as blockchain and decentralized systems.
“Trust Me” aims to equip listeners with a deeper understanding of the importance of trust and its influence in our digital lives. By addressing the challenges and providing actionable insights, the episode offers a valuable resource for individuals and organizations striving to establish and maintain trust in an ever-evolving digital landscape.
The following information is intended for general educational purposes only and should not be construed as legal or investment advice.
The surge in cryptocurrency adoption necessitates proper estate and legacy planning for crypto assets. Despite an uncertain regulatory environment, investment in blockchain-based systems continues in the U.S., and other regions have already enacted crypto-related legislation.
Safeguarding Digital Legacies
A significant number of investors, especially younger ones, possess crypto assets in various forms, requiring advice on estate planning. Often, these investors don’t recognize the need for formal planning due to crypto’s volatility and their perceived wealth. Legacy planning for digital assets differs from traditional assets. The technical aspect, ensuring heirs can control the assets, is more critical than the legal planning. A team like Bespoke can add value by preparing the inventory, creating a tech-focused legacy plan, and educating heirs on the use of keys and investment philosophies.
Unraveling the Complexities of Crypto Asset Planning
Crypto asset planning also presents unique challenges like regulatory ambiguity, rapid innovation, and cost basis considerations. An asset’s potential to increase rapidly in value underscores the importance of legacy planning. Ultra High Net Worth (UHNW) individuals in crypto face additional difficulties, such as tax issues complicated by basis considerations and jurisdictional questions, requiring crypto-literate advisors and attorneys.
In summary, as cryptocurrencies rise in prominence, the role of financial advisors in guiding clients through estate and legacy planning for digital assets becomes vital. It’s essential for estate plans to accommodate digital assets efficiently and legally, requiring a strategic blend of tech-native wealth transfer and protection plans, coupled with collaborative efforts with legal and tax professionals.
The following information is intended for general educational purposes only and should not be construed as legal or investment advice.
If you want to be the only person in the world who has access to your Bitcoin while you’re still alive, then how do you make sure it’s handled correctly when you pass away? How do you ensure it’s passed along the right way and that you’re not passing along just a fraction of the wealth you left due to taxation and poor wealth management?
Why is estate planning so important?
So you have your stack and plan on passing the keys to your kids before you die. If that’s as far as your digital asset legacy planning goes, it’s an inadequate solution. Why? It’s naïve.
The government has created default rules that will dictate how your property will be distributed when you die. If you don’t intentionally create a plan to privatize this process, one that the law recognizes, odds are the decisions made on your behalf are not the ones you’d make for yourself. Proactive, intentional estate planning is the ultimate exercise in self sovereignty.
For more about why estate planning is so important click here.
Where to begin with estate planning?
Pick a trust. Why? A will, on the other hand, guarantees a probate process. The probate process, across the country, is a public process. Courts will step in when you pass away.
With a revocable trust or living trust, this is not the case. The transfer of wealth to the successor trustee can almost seamlessly take control of those assets, privately.
Developing a trust is a process in which you articulate what you want to happen to your property in the case something happens to you. You decide who you want to manage the assets and how you want them to manage them. This applies to those with a couple hundred thousand of wealth and a couple hundred millions.
With Bitcoin, in addition to transitioning the private key material, there are still strategic provisions the trust should contemplate. You can learn more about those specifics by joining the conversation here.
Level up estate planning from more than a will or a trust.
A whole world of complex estate planning is out there. Check out this example:
A revocable trust is simply a way to privatize your asset decision making down the road, but it gets you zero tax and asset protection during your life.
Perhaps you want to shift some of your Bitcoin wealth out of your estate, for tax reasons. Maybe you’ll want to look at putting the Bitcoin in an irrevocable trust, so that growth is happening outside of your estate for tax purposes.
For more information on the many options to level up your estate planning from more than a will or a trust, click here.
Title and possession
What’s the difference between title and possession, and what’s the significance of these components within estate planning?
This conversation starts with severance of unilateral control. At Bespoke, we believe the use of a qualified custodian makes the most sense. If you aren’t paying for custody, then you are the product. Learn more about severance of unilateral control, title vs possession here.
How to identify an estate planner
Interviewing estate planners in your area? Here are some questions to help you evaluate them and ensure you’re selecting the right estate planner.
How do they view planning? Is it a simple transaction or relationship that evolves over time?
Fixed fee engagement or hourly? It’s important to know your all-in cost before committing to anything.
Is estate planning a main focus of their company?
Do they understand the nuances of dealing with Bitcoin?
This blog post is a summary of the Unchained Webinar Episode: Estate Planning on a Bitcoin. featuring our Co-Founders Matthew McClintock & Jonathan Mintz, Bespoke Co-Founders joined. Grab the full conversation here.
The following information is intended for general educational purposes only and should not be construed as legal or investment advice.
Look back at events in the past decade – why crypto emerged
Major solutions around digital technologies in the last 2 decades have emerged. Semiconductors unlocked software, which made way for the smartphone/desktop economy, creating the app economy, and then emerged the digital economy. With digital realities, generational wealth was created with those early investors. Digital assets are a natural extension of the technology and finance industries. So where’s the next big lift? What bottlenecks are holding us back?
Implications of building wealth at unprecedented speeds
These individuals are visionaries, with eyes on the world they envision they are still left with the world as it is today. Dealing with matters like security and taxes, among other necessities to protect those digital assets.
Switzerland is far ahead of the US in crypto regulations. There are ancient elements ingrained in Swiss culture, business, and banking that align with the values of crypto. Here are a couple ways core Swiss concepts speak to the ethos of crypto:
True Swiss banks are custodian banks.
Collaborative approach to building crypto regulations
2 fully regulated digital asset banks
Suite of service providers
Souq (platform for buying and selling goods using cryptocurrencies)
In the final portion of the webinar you’ll learn about the less obvious areas of crypto to keep an eye on and what’s to come, from Bespoke experts Matt McClintock and Sune Sorensen.
Access the full webinar below.
The following information is intended for general educational purposes only and should not be construed as legal or investment advice.
The residence of a trust is called the trust “situs” and it may be determined by a combination of factors, including the terms of the trust, the location of the trust settlor, the location of the trustee(s), and the location of beneficiaries. Situs matters because different states have different rules applicable to trusts – and some rules are more favorable than others, depending on your specific circumstances and estate planning goals.
Can I choose my trust’s situs, or am I forced to use my state of residency?
There is a common misconception that one must situs their trust(s) in the jurisdiction of their residency. To the contrary, one can “cherry pick” the best jurisdiction for them given their goals and circumstances, and frequently that is not their residency jurisdiction. As long as the trust is established correctly and has sufficient connections to the chosen situs (e.g., a trustee in that jurisdiction), it can be governed by laws of your choice. By analogy, for decades anyone who created a U.S. corporation did so in Delaware, not because the incorporator resided in Delaware but because Delaware had the best laws for corporations. Similarly, trust settlors can select the best jurisdiction for them given their circumstances.
What are some important considerations that may vary by jurisdiction?
Different states, or jurisdictions, apply different rules to trusts. Choosing the appropriate situs will depend on your personal circumstances and goals. Some of the most common factors weighed in choosing trust situs include:
Taxation. Some states subject undistributed trust income to state level estate taxation; some states do NOT. Whether your trust income will be subjected to such taxation depends on the situs, which, in turn, depends on a combination of factors. Choosing the appropriate situs could result in substantial tax savings.
Applicable Perpetuity Period. The “perpetuity period” refers to the length of time a trust can continue – at the end of the perpetuity period the trust must distribute its assets outright to the then beneficiaries. Thus, if your intention is to benefit subsequent generations, this is an especially important consideration; the longer the applicable perpetuity period, the longer the trust can serve beneficiaries – and the greater the benefit conferred. Funds held in trust can provide creditor protection and insulation from transfer taxation, such as estate and gift taxes. Some states have unlimited, or extremely long, perpetuity periods; other states subject trusts to much shorter perpetuity periods. Choosing the appropriate situs could result in a longer lasting trust, with greater financial and protective benefit for generations yet to come.
Asset and Creditor Protection. One advantage of trust-based planning is that, when done properly, it can offer high levels of asset protection from various forms of financial liability, such as creditor protection, protection from divorce, and protection from civil judgments, both for the trust settlor and beneficiaries. Case law and statutory regulation differs state to state regarding the type and degree of asset and creditor protection afforded by various types of trust-based planning; some states provide substantially more protection against the ability of creditors to pierce through to trust assets or offer shorter “lookback” windows for transfers to trusts. Choosing the appropriate situs could result in greater levels of asset and creditor protection, again both for the trust settlor(s) and beneficiaries.
“Decanting” refers to the ability to pour assets out of an irrevocable trust and into a new trust, with terms or situs that better suit the current circumstances and better serve the beneficiaries. “Directed Trust” rules refer to the ability to give someone other than the trustee (generally called a “trust protector”, “trust advisor”, or “trust director”) power over some (or all) aspects of trust administration. Decanting, and using Directed Trusts generally increases the flexibility of a trust to adapt to changes in circumstances and can prove very useful in protecting the settlor’s intent and the best interests of the beneficiaries. Different states have different rules and regulations regarding decanting and directed trusts; with some states offering more favorable options. Choosing the appropriate situs could result in substantially more flexibility.
What jurisdictions might serve me best?
Choosing the best situs for your trust-based planning needs depends on a number of factors and requires careful attention to, and familiarity with, the rules of various jurisdictions. Alaska, Delaware, Nevada, South Dakota (in alphabetical order) have long been considered favorable jurisdictions, but other states, including New Hampshire, Ohio, Tennessee, and particularly for cryptoassets, Wyoming (in alphabetical order) also have a lot to offer. We have the knowledge and experience necessary to help you determine the appropriate situs, after careful consideration of your unique needs.
If you would like to discuss whether a certain jurisdiction will help you accomplish your family’s legacy planning goals, please reach out to your Client Ambassador to discuss.
The following information is intended for general educational purposes only and should not be construed as legal or investment advice.
In the world of estate planning, few things have had as much impact as email and the internet. These technologies changed the way we interact both personally and professionally, allowing us to exchange ideas and value across borders instantaneously. As internet commerce and communication expanded, the need for secure and confidential information transmission grew, leading to the rise of cryptography and blockchain-based data networks.
Blockchain networks operate without a central server, relying on interconnected peers to verify the validity of data transfers and store transaction records. However, there is no clear incentive for unrelated peers on a decentralized blockchain network to expend resources to validate transactions. Cryptographically secured blockchain tokens, also known as cryptoassets or cryptocurrency, provide incentives for participation on blockchain networks.
Bitcoin is widely believed to be the first successful decentralized blockchain network with a secure token-based economic incentive model. Since its launch in 2009, Bitcoin has spawned an entire economy with thousands of cryptoassets and separate blockchains, with a global economy measured in trillions of dollars.
Estate planners must be familiar with cryptoassets and blockchain technology, as their clients may have wealth comprised of these assets. There are many unanswered questions regarding the treatment of these assets in estate planning documents, as well as transfer and valuation issues.
For further discussion of these topics, read the full article that appeared in theEstate Planning Magazine. It is a primer on digital assets and strategies for their transfer. As these technologies continue to evolve, they will undoubtedly have a significant impact on the fields of law and finance, emphasizing the importance of expertise in this area.
Estate Planning in the Era of Digital Wealth by Matthew T. McClintock, Vanessa L. Kanaga and Jonathan G. Blattmachr originally appeared in Estate Planning, a Thomson Reuters publication.
The following information is intended for general educational purposes only and should not be construed as legal or investment advice.
During the 2008 recession, many families took advantage of the down markets and leveraged gifting options to reduce taxes. 2022 once again provided such an opportunity. How long this environment will last is difficult to predict, but with high exemptions combined with depressed asset values caused by rising interest rates and fears of inflation and/or a recession, this moment in time may be the best strategic gifting opportunity for years to come.
Advantages of the Current Estate and Generation-Skipping Transfer (GST) Tax Exemptions Since 2000, the federal estate tax and generation-skipping transfer tax exemptions have steadily increased:
$675,000 in 2000 $1,000,000 in 2005 $3,500,000 in 2009
$10,000,000 in 2017 (indexed for inflation)
In 2022, the inflation adjustment increased the exemption to $12,060,00 per person; in other words, this is the maximum amount a U.S. citizen or resident can give away or die owning in 2022 without paying gift or estate tax. Alternatively, if an estate were to exceed this limit, a 40% federal estate tax rate would apply to the excess amount. (The GST tax is in essence a second layer of estate tax for transfers that skip a generation or more.)
In addition to federal taxes, some states do levy inheritance or estate taxes, but many places, such as California, Colorado, and Wyoming, do not.
How Much Wealth Can Be Gifted Without Tax Liability? The amount you can gift free of tax depends on the current lifetime exemption at the time of the gift or upon your death. If you make lifetime gifts exceeding $16,000 per recipient per calendar year, you must file a gift tax return and allocate a specific amount of your estate and GST exemptions toward that gift. Significantly, the Internal Revenue Service (IRS) has made it clear that making lifetime gifts when an exemption limit is high will not result in any tax if the exemption is lower when you die. The gift keeps its exemption limit that was current at the time of your gift. Under the current law, unless Congress intervenes, this exemption is scheduled to fall back or “sunset” to $5 million indexed for inflation (roughly $6 million in 2022) on January 1, 2026. Given the current historically high exemptions and the possibility that these exemptions will be much lower in the future, lifetime gifts that use some or all your exemption are best. Any asset transferred, plus its appreciation from the date of transfer, will not be treated as a countable estate asset since it now belongs to the recipient.
Leveraging Gifts in a Down Market
There are two specific types of gifts typically used to transfer wealth during the current down market: Making Individual Annual Gifts for the maximum Gift Tax Exemption Amount 2022 had an annual $16,000 per person limit. This gift tax annual exclusion applies to all gifts made to the recipient during the tax year – including birthday gifts, holiday gifts, and any other gifts during the year. Annual exclusion gifts may be made in the form of cash or any other property, and they may be made outright or in trust(s).
Make Lifetime Gifts Using All or Part of Your Lifetime Maximum Exemption
One of the best methods for creating generational wealth is by not gifting cash but making large lifetime gifts of assets that are likely to increase in value significantly over time. When asset values are depressed, it can be particularly advantageous to make carefully structured, leveraged gifts, usually into protective long-term trusts. As depressed or discounted assets are gifted into protective trusts, the future increase in the value of those assets will be out of the donor’s estate for federal transfer tax purposes. Further, those protective trusts may allow the family’s wealth to avoid estate and GST tax for many generations.
Capital Gain Tax Considerations
Careful gift planning should take into consideration not only the federal transfer tax implications, but also the impact the gift may have on capital gain tax when the asset is later sold by the donee. Capital gain tax is a specific type of income tax levied on any increase in value from the date the owner acquired the property and the date the owner disposes of the property. The value of the property when the owner initially acquired the property is the owner’s “basis.” In the case of gifts made by the owner to a donee during the owner’s lifetime, the donee receives the donor’s basis in the property. (This is called “carryover basis.”)
In the case of gifts made after the owner’s death (for property included in the owner’s estate), under current law the recipient’s basis in the property is reset at the asset’s value on the owner’s date of death. This is often called a “step-up” in basis.
When contemplating whether to make gifts during life or at death, it is important to compare the implications of capital gain tax with the implications of the estate tax.
Learn More About Gifting Your Assets Intelligently
Estate planning requires careful consideration of tax in all its forms, but also requires consideration of a process and structure to prepare heirs to responsibly grow into the gifts and inheritance they will someday receive. Bespoke Services helps affluent individuals and families strategically protect and enjoy the wealth they’ve worked hard to build.
The following information is intended for general educational purposes only and should not be construed as legal or investment advice.
