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Old 11-10-2020, 09:29 AM   #21
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.....

For married couples, there's also a Federal "portability" option where the surviving spouse can elect to combine the two exemptions. Couples whose combined net worth is greater than a single estate tax exemption but less than two exemptions can use that to avoid any tax when the second spouse dies without having to setup A/B trusts.
Thanks.... I had forgotten about this, so now I searched and found this simple explanation:
https://www.thebalance.com/federal-e...mption-3505658

The trick will be to remember to do it within the time limits while still wrapped in grief and turmoil.
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Old 11-10-2020, 09:35 AM   #22
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@Stormy Kromer Thanks. So you, with a trust in place, would rather transfer (give, gift) part of your estate to the next generation while you are alive. Is this right?

Are you saying that the recommendation to "give it away on this side of the grass" is a sound strategy, in the situation where a trust is in place?
Yes. We do want to give away a significant portion of our estate while alive. If our net worth is in territory above the estate tax I feel we can do so very comfortably. We'll still die with a pile of money, but not as big because we want to help our family in the years when they need it (college, house down payments…)

The trusts have their purposes, mainly to avoid probate.

Everyone's situation is different and legal assistance is a necessity.

I want to avoid situations that I see when an older person won't give their grandchildren a Christmas gift because they are holding onto their wealth til they die.
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Old 11-10-2020, 09:48 AM   #23
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I had stopped giving $ to my child trying to keep assets lower for FAFSA purposes. Now, DC is in school and got enough merit aid that getting financial aid is unlikely. So I am pondering reversing course and maxing out yearly contributions. I'm also considering paying school costs above that (instead of using 529 $) with the thought that the 529 funds can later be used for DC's (eventual) children. Also considering $ that would require form 709 filing.

On my own front, I am going to max out my bracket this year (24%, single) and possibly enough LTCG to get to but not exceed the NIIT limit (200k). Yesterday when the market popped on the open I sold some Apple ... which was like having a long time lover go away (this is stock I've owned a long long time). (I still have lots of Apple left but it is my (by far) highest single stock risk.)
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Old 11-10-2020, 10:14 AM   #24
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Giving it away on this side of the grass - is this the recommendation when no trust is in place, and probate is the expected liquidation method?

If a trust is in place, does the recommendation remain to give it away on this side of the grass?

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Your emphasis on "a trust in place" is confusing me. Please explain. How does having a trust in place impact decisions on lowering your estate value via gifting?
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Old 11-10-2020, 10:24 AM   #25
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I feel very fortunate as I don't ever see myself or my husband ever being in a position to have to worry about the estate tax!
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Old 11-10-2020, 10:29 AM   #26
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Your emphasis on "a trust in place" is confusing me. Please explain. How does having a trust in place impact decisions on lowering your estate value via gifting?

It only matters if the trust is a irrevocable trust. It does add a lot more administrative costs, including setup and separate tax returns among others.
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Old 11-10-2020, 10:46 AM   #27
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I feel very fortunate as I don't ever see myself or my husband ever being in a position to have to worry about the estate tax!
Try a Firecalc run, and see if some of the lines do put you in estate tax range. Hopefully the exemption number will be inflation adjusted, but I still think more than a few of my lines will go over.
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Old 11-10-2020, 12:20 PM   #28
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It only matters if the trust is a irrevocable trust. It does add a lot more administrative costs, including setup and separate tax returns among others.
My experience is different.

For my mom and dad's irrevocable living trusts, other than creating the trust documents and titling assets in the name of the trust, there are no costs until you die since the income from the assets pass through to your personal tax return.

I administer my Dad's irrevocable living trust and the admin costs are negligible since I DIY. The assets are all in an account in the trust's name at Vanguard. I do the annual tax return... its a few pages and I just type in the numbers on 1041 pdf forms, print and mail. Now that dad is passed, the income from the trust passes through to my mother on a K-1 that essentially mirrors the 1099-DIV and 1099-B that the trust receives from Vanguard.

Obviously, YMMV since there are many different types of trusts and we have intentionally designed ours to be simple.
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Old 11-10-2020, 01:05 PM   #29
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My experience is different.



For my mom and dad's irrevocable living trusts, other than creating the trust documents and titling assets in the name of the trust, there are no costs until you die since the income from the assets pass through to your personal tax return.



I administer my Dad's irrevocable living trust and the admin costs are negligible since I DIY. The assets are all in an account in the trust's name at Vanguard. I do the annual tax return... its a few pages and I just type in the numbers on 1041 pdf forms, print and mail. Now that dad is passed, the income from the trust passes through to my mother on a K-1 that essentially mirrors the 1099-DIV and 1099-B that the trust receives from Vanguard.



Obviously, YMMV since there are many different types of trusts and we have intentionally designed ours to be simple.

The key in your experience is the income passing through immediately. That isn’t true in all trusts depending on the type of assets.
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Old 11-10-2020, 01:08 PM   #30
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I agree... like I said YMMV since there are different types of trusts and we have kept ours simple.
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Old 11-10-2020, 01:14 PM   #31
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@pb4uski or @cathy63, my understanding is that a traditional IRA cannot be put into an irrevocable living trust. Is my understanding accurate?

The general problem that my friend is facing can be seen by assuming a $10M traditional IRA (not the case, but demonstrates the issue). I can't see any way to get it out of the estate other than withdrawals and gifting, or Roth conversions, and both of those result in ordinary income tax at a high marginal rate. For example, if my friend decides to wait until 12/31/2025 and make a $4M withdrawal to get the traditional IRA down to $6M, then my friend has $4M of taxable income, most of which would be taxed at ~40% or whatever the top marginal rate will be at that time.

...

By the way, thanks to everyone who has replied. I've been collecting the responses and strategies and am starting to understand the landscape that my friend faces a lot better than I did when I posed the question.
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Old 11-10-2020, 01:17 PM   #32
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@pb4uski or @cathy63, my understanding is that a traditional IRA cannot be put into an irrevocable living trust. Is my understanding accurate? ...
Yes, to my knowledge. But with $10m tIRA I would think that he should be able to get some really good advice on some advanced strategies that might help him.
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Reasonable ways to minimize estate taxes?
Old 11-10-2020, 01:28 PM   #33
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Reasonable ways to minimize estate taxes?

Under the SECURE Act, an inherited IRA would have to be distributed and taxes paid within ten years. There is no way around that except perhaps charitable contributions, or gifting.
The money can be protected if the beneficiaries of the trust are an Accumulation Trust. Taxes are paid, but at least the money is protected from lawsuits and divorce.
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Old 11-10-2020, 01:36 PM   #34
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Your emphasis on "a trust in place" is confusing me. Please explain. How does having a trust in place impact decisions on lowering your estate value via gifting?

@youbet This is precisely my question. Do you have an opinion on it?
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Old 11-10-2020, 01:36 PM   #35
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Yes, to my knowledge. But with $10m tIRA I would think that he should be able to get some really good advice on some advanced strategies that might help him.
As you might have also guessed, 80+ year old people with $10M IRAs are children of the Great Depression who are generally quite frugal. But I take your point, and it's one of the strategies on my list ("Consult a good estate planning practitioner"). Thanks for the reply.
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Old 11-10-2020, 02:27 PM   #36
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@pb4uski or @cathy63, my understanding is that a traditional IRA cannot be put into an irrevocable living trust. Is my understanding accurate?

The general problem that my friend is facing can be seen by assuming a $10M traditional IRA (not the case, but demonstrates the issue). I can't see any way to get it out of the estate other than withdrawals and gifting, or Roth conversions, and both of those result in ordinary income tax at a high marginal rate. For example, if my friend decides to wait until 12/31/2025 and make a $4M withdrawal to get the traditional IRA down to $6M, then my friend has $4M of taxable income, most of which would be taxed at ~40% or whatever the top marginal rate will be at that time.

...

By the way, thanks to everyone who has replied. I've been collecting the responses and strategies and am starting to understand the landscape that my friend faces a lot better than I did when I posed the question.
I agree with you and pb4uski on this. There's no way to get an IRA out of an estate and still keep the money in the family. It's for "tax deferral", not "tax forgiveness", so there aren't a lot of loopholes.

One thing your friend should do though, is use that large IRA for his/her charitable giving (via QCDs) while alive. Also if your friend has any desire to leave money to a charity, then see if naming the charity as one of the IRA beneficiaries would be better for the overall estate tax situation than leaving after-tax funds. I think it would, but I'm not entirely sure. I also think you can also name a DAF as a beneficiary if there's no specific charity in mind and let the heirs make that decision when the time comes.
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Old 11-10-2020, 02:52 PM   #37
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@cathy63, thanks for the reply and confirmation. Even though it's disappointing to hear about the lack of loopholes, it's understandable and helps set expectations. My friend isn't particularly charitable, at least not to the point where QCDs would make an appreciable difference, but it's a good point to include.

...

For those who might be interested, here's a list of estate tax minimization strategies that I have collected so far from replies on this thread and other sources:

Alternative valuation date
Annual gifting
Accelerated gifting
Irrevocable living trust
529s
QCDs / DAFs
Partial disclaimers (helps the next generation)
Consult an estate planning attorney
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Old 11-11-2020, 06:24 PM   #38
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In 2016 my sister-in-law passed away, leaving everything she owned to her sister [my wife]. My wife was the executor and she was the sole heir. She went through a year long nightmare in dealing with the probate court, as the judge wanted to contest the will on behalf of that county.

After that experience, we decided to put most of our estate into LLCs with our sons as part owners.
That sounds scary. WOW
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Old 11-11-2020, 06:30 PM   #39
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In 2016 my sister-in-law passed away, leaving everything she owned to her sister [my wife]. My wife was the executor and she was the sole heir. She went through a year long nightmare in dealing with the probate court, as the judge wanted to contest the will on behalf of that county.

After that experience, we decided to put most of our estate into LLCs with our sons as part owners.
If you don't mind me asking can you give a ball park of the sum?
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Old 11-11-2020, 06:31 PM   #40
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That sounds scary. WOW
yes.

We had thought that the probate would be easy, with one person being the executor and the sole heir. But the probate judge thought differently.

The process has scared us away from ever allowing our assets to go through a probate court.
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