Cash to avoid estate tax

[ERD50]

....

Recent personal experience has me doubting that I can really script a long term trust to do what I want decades down the road. Some family members did a set of trusts. Now that one is irrevocable, the surviving spouse has determined that what is doing is not what they now want. Too late. Moral -- be careful what you put into a trust. Update as needed.

I'm going to revise ours in the near future.

If your going to create an irrevocable trust... get it right the first time.

Yes, the other advantages you mention do make sense to me. But as you say, the irrevocable part is a tough pill to swallow. Tax laws change, situations change.

I know people who were being hit up to do some of this complex and irrevocable stuff that they didn't understand back in the 90's when the estate tax limits were ~ $600K and 55%. They didn't bite, and good thing, as their estates are nowhere near the current ~ $5M limits.

And even though we, nor anyone we know, are near those limits, I still think the rate should be 15%, same as LTCG. I think the 40% rate just motivates work-arounds, and people other than the other taxpayers benefit, which defeats the purpose.

-ERD50

 

[SecondCor521]

What if you have a whole life insurance policy and your heirs are the beneficiaries? Is the death benefit part of the estate? I don't know the answer, but I'll bet someone here does.

My parents did this. In their case they had a bunch of whole life policies that they had purchased during their working careers, then decided on an ILIT (irrevocable life insurance trust) later.

They set up the trust, moved the policies into the trust, and that was pretty much it as far as I know. All but one of the policies were self-sustaining, and the dividends were set to buy additional insurance.

With the one non-self-sustaining policy, my parents each year gift into the trust enough money to pay the annual premium. Technically each year the trustee (my sister) advises my other sister and me that we can have our portion of the cash if we want it. But we've elected to respect my parents' wishes and let the money pay the premium.

When my Mom passed away last year, we collected on the policies on her that were in the trust, and the proceeds were not included in her estate. We plan to do the same thing when my Dad passes away.

As to ERD50's questions, I don't think there have been any trust administration expenses - my sister just does it for free, because that's just how my family rolls. If there have been any tax returns filed by the trust, I am not aware of them. And yes, you could just stick the money in the trust, I suppose. I think my parents did the life insurance thing because by the time they got to that point in their planning they already had collected the whole life policies and wanted to get the proceeds of those out of their estate.

I think the trust has itself listed as the beneficiaries of the policies, and then each of us kids is a beneficiary of the trust, but I'm not really sure. It doesn't really matter as my parents had everything set up to pay everything out 1/3 each.

 

[Sunset]

I was hoping for some more adventurous type of ideas:
Like buying bags of gold and silver coins, then burying them in various National Parks, and leaving a treasure map for the heirs to go find them.
Coins are untraceable and not having them on the deceased persons property makes them anonymous as to ownership until found.

 

[MatatuPuncher]

I was hoping for some more adventurous type of ideas:
Like buying bags of gold and silver coins, then burying them in various National Parks, and leaving a treasure map for the heirs to go find them.
Coins are untraceable and not having them on the deceased persons property makes them anonymous as to ownership until found.

I'm certainly more adventurous than most on here and I think a lot of the respondents are missing the point of what the OP is asking. How do I get a bunch of cash together that my heirs can take and it not be reportable? Or...I've been involved in cash (or nefarious) business and have a lot of it now what do I do?

Because of political issues growing up where I did my family routinely had over 100k equivalent USD in the house. So I have some firsthand experience . OP can simply withdraw several thousand per month and just not spend it all. You could easily get several hundred thousand together after only a couple years and it be completely off the books. Vegas trips, horse racing, etc.... it all adds up. A trusted heir gets it upon death and no one is the wiser.

I know everyone will scream about law breaking, ethics, and other non-sense. I can tell you from first hand experience that unless this money is clearly drug related no one will care. Not a tiny bit. As long as you don't tell them.

Good luck.

 

[harley]

I know everyone will scream about law breaking, ethics, and other non-sense. I can tell you from first hand experience that unless this money is clearly drug related no one will care. Not a tiny bit. As long as you don't tell them.

Good luck.

Not necessarily true. I don't care about the ethics so much, but once the heir has it they have to do something with it. Now if they just keep it around and slowly spend it or even hold it to pass on again (eating the losses due to inflation), no biggie. But trying to get it back into the financial systems could be quite a PITA. Any deposits over $10K are reported, and repetitive large cash deposits would raise red fflags. Trying to do smaller deposits to bypass the reporting is called structuring and is also illegal. Obviously it can be done if you are very patient or have a business like a restaurant that would make it easy to launder the cash through. But without that you're stuck with a large amount of difficult to use cash in a day when the feds are trying mightily to do away with it. And that's not even mentioning things like asset forfeiture. Any brush with the law could result in the loss of all of it, and possible charges. I don't disagree with keeping the money in cash if you are (rightfully or not) paranoid, but that doesn't make it an easy task for the recipient to deal with.

 

[Fedup]

It's dangerous to keep that much cash anyway. Ethical or not.

 

[CaliKid]

Yes, the other advantages you mention do make sense to me. But as you say, the irrevocable part is a tough pill to swallow. Tax laws change, situations change.

I know people who were being hit up to do some of this complex and irrevocable stuff that they didn't understand back in the 90's when the estate tax limits were ~ $600K and 55%. They didn't bite, and good thing, as their estates are nowhere near the current ~ $5M limits.

And even though we, nor anyone we know, are near those limits, I still think the rate should be 15%, same as LTCG. I think the 40% rate just motivates work-arounds, and people other than the other taxpayers benefit, which defeats the purpose.

-ERD50

If done correctly an "irrevocable" trust can actually still be changed. That would include common things like the ability to change trustees and even beneficiaries (the change by a technically speaking unrelated and uncontrolled or "independent" person -- i.e. your best friend). Additionally, if it was poorly written and change not allowed then you can look into "decanting" of an irrevocable trust.

 

[ERD50]

... OP can simply withdraw several thousand per month and just not spend it all. You could easily get several hundred thousand together after only a couple years and it be completely off the books. Vegas trips, horse racing, etc.... it all adds up. A trusted heir gets it upon death and no one is the wiser.

....

Not as exciting, but the same thing (and easily much more) can be done perfectly legally.

You can give away $14,000 annually to any person(s) - no reporting, no taxes due, nothing. With a spouse, each can give away $14,000 annually to any person(s).

Note "annual gift" on the check, take a picture, and it's even documented in case you ever got questioned for that kind of deposit (though I think mostly it is cash deposits that get questioned?

-ERD50

 

[Sunset]

It's dangerous to keep that much cash anyway. Ethical or not.

Very true, I once read about a husband and wife who had a big stack of cash in a safe in their home. It was in a rough neighborhood where I used to go for fighting classes.
One day some guys broke in the house, and beat them until they handed over the cash.

It was their life savings as they didn't believe in the safety of putting money in the bank