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Old 09-16-2020, 10:59 AM   #21
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Originally Posted by RetireAge50 View Post
As a partial solution, maybe do the 11 million gift immediately (to avoid any future changes in the law).
Good thought but I don't think that's allowed. I could be wrong on this, but I think the exemption amount is set at the time of death.

I recall that the federal estate tax was actually repealed for just one year (2010), so that any estate from folks passing that year, no matter the size, didn't have to pay for estate tax. If there's a way to "lock in" the exemption amount that year by gifting away one's estate that year, probably a lot of people would have done it.

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Old 09-16-2020, 11:01 AM   #22
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Originally Posted by Steelart99 View Post
I'll check into that. My guess is that the insurance would be pricey ... but not as pricey as a 40%+ Estate tax.

Thank you.

I assume that the 40% only applies to the portion above the $11M, so it might not be as bad as you think overall. Can it be managed with a will to do charitable giving to the estate limit? Don't know at all, just throwing it out there.
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Old 09-16-2020, 11:09 AM   #23
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Originally Posted by Gill View Post
Correct. If the insured doesn't own the policy it is not included in the estate. Also, yes, the insured could pay the premiums and the payments would be gifts to the owner of the policy.
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This is exactly how my parents did it / are doing it. Bought a second-to-die policy, transferred ownership of it into an ILIT, and then make annual gifts to the ILIT equal to the insurance premium.

For a while my sister (trustee of the ILIT) was sending out Crummey letters. We finally decided we didn't need to bother as we are all on board with the program.

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Originally Posted by Steelart99 View Post
RE: "Loan" ... the only advantage is to lend cash from the estate that is not now earning anything and loaning it to a family member who might invest it for a reasonable return. The increase is not added to the estate, but goes to the family member.

For the "Loan", the interest is based on the Applicable Federal Rates (AFR). For a Sep 2020 loan at 3-years, the rate is 0.14%. Not a bad loan rate. So for a $1M loan, the interest payment is $1400 per year.
Ah, OK. Thanks for the explanation. Since your Mom isn't going to be investing the cash anyway, then lending it out could make sense. But this doesn't really *reduce* your Mom's estate any (unless the AFR is less than what she's getting on her cash now, which it could be).

Have you thought about what happens if one of your siblings borrows $1M from your Mom and invests in the next Enron?
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Old 09-16-2020, 11:16 AM   #24
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Yes, DW and I just set one up.

We got a term life insurance policy, which is payable upon our deaths to an irrevocable trust that we set up for the purpose. Our kids are beneficiaries of the trust (and not the policy). With this set up, proceeds from the life insurance are not subject to estate tax.
I hope the income generated is immediately distributed to beneficiaries as trust income taxes are stiff.
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Old 09-16-2020, 06:50 PM   #25
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This. You cannot make yourself an expert at this, even by consulting SGOTI. And you are talking about a lot of money. I would look for attorney referrals and/or CPA referrals. This is not a new problem; many people have had to solve it and by consulting experts you can take advantage of the resulting wisdom.

That is not to say that you shouldn't try to learn as much as possible. A knowledgeable client can help the professionals come up with the best strategy. But don't try to be Superman and execute a home-made strategy. It is almost guaranteed to be sub-optimal.

And, hey, the fees will reduce the estate value!
OP here. It was while learning as much as possible that I came to the same conclusion that several of you have noted. Hire an expert
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Old 09-16-2020, 06:55 PM   #26
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Originally Posted by SecondCor521 View Post
This is exactly how my parents did it / are doing it. Bought a second-to-die policy, transferred ownership of it into an ILIT, and then make annual gifts to the ILIT equal to the insurance premium.

For a while my sister (trustee of the ILIT) was sending out Crummey letters. We finally decided we didn't need to bother as we are all on board with the program.



Ah, OK. Thanks for the explanation. Since your Mom isn't going to be investing the cash anyway, then lending it out could make sense. But this doesn't really *reduce* your Mom's estate any (unless the AFR is less than what she's getting on her cash now, which it could be).

Have you thought about what happens if one of your siblings borrows $1M from your Mom and invests in the next Enron?

Enron ... funny. I'm trying to determine is any "loan" can be simply renewed if the term is reached before the Estate Tax issue needs to be addressed. Further, I'm also finding out if the "loan" can simply be forgiven by the executor of the will upon mom's death without triggering a taxable event. Sigh ..

Another reason to hire an expert.
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Old 09-16-2020, 07:00 PM   #27
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I assume that the 40% only applies to the portion above the $11M, so it might not be as bad as you think overall. Can it be managed with a will to do charitable giving to the estate limit? Don't know at all, just throwing it out there.
As of right now, the 40% would not be that big an issue as it only applied to estate value above the exemption level. And, mom is just at the exception level.

However, if there is a political party change in the November election, indications are that there could be a drop back to the previous exemption level, which is $5M less that what it is now. Further, there is a real chance that the tax will be raised from 40% to 50-55%.

I'm trying to look ahead and minimize the damage.
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Old 09-16-2020, 07:12 PM   #28
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Good thought but I don't think that's allowed. I could be wrong on this, but I think the exemption amount is set at the time of death.

I recall that the federal estate tax was actually repealed for just one year (2010), so that any estate from folks passing that year, no matter the size, didn't have to pay for estate tax. If there's a way to "lock in" the exemption amount that year by gifting away one's estate that year, probably a lot of people would have done it.

Lucky Dude
The estate tax and the gift taxes are companions. The law in effect at the time of transfer is what controls. You have a lifetime exclusion from estate and gift taxes. If you make a large gift in one tax year, for which you to claim a portion of the exclusion, a tax law change to reduce the exclusion in a subsequent year would not cause you to owe gift tax.

In 2010 when there was no estate tax the gift tax nonetheless remained in place. So you are correct that this would not have worked in that year.

As several have said, best advice is to consult a qualified estate and gift tax attorney.
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Old 09-16-2020, 07:29 PM   #29
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Enron ... funny. I'm trying to determine is any "loan" can be simply renewed if the term is reached before the Estate Tax issue needs to be addressed. Further, I'm also finding out if the "loan" can simply be forgiven by the executor of the will upon mom's death without triggering a taxable event. Sigh ..

Another reason to hire an expert.
I guess I was pointing out that doing $1M loans to someone in the family and have them lose it could cause family dynamics issues around the Thanksgiving table. It very well could in most families I know. Maybe not yours.

You can extend the terms of a loan. Just write up a new document. One issue may be Mom's competence to sign such a loan agreement at some point if her mental acuity drops, but since you have POA you could presumably handle a loan renewal on her behalf.

The executor could forgive a loan, but I'm fairly certain it would be treated as a gift to the borrower in the amount of the forgiven principal. If the principal was >$15K, then the estate would owe gift tax on the amount exceeding $15K. Although if the borrower were also an heir and the terms of the will permitted it, you could probably treat any forgiveness as a distribution of their portion of the inheritance, since mathematically it works out the same.

IANAL, YMMV, etc.
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