Make Sure Your Estate Plan Does Not Fall Prey to The Three Deadliest Tax Complications

While there are a number of tax issues that can affect estate plans, there are several in particular that can have significantly sinister effects and are therefore worth discussing in greater depth. When you have your regular discussion with your estate planning attorney, it is wise to discuss the specific topics to see if they are not only relevant to you (and your family, etc.), but to find out what you should do if they are.

Family Limited Partnerships and Limited Liability Companies

Once such issue involves family limited partnerships and limited liability companies. These were sometimes formed in order to hold business assets or family investments so that parents can still control the investments and the interests, even if some are given away. This was especially helpful given their valuation discounts when it comes to estate and gift tax purposes.

In addition, both family limited partnerships and limited liability companies provide a significant amount of asset protection; even if, for example, a family member who owns interest is sued. In that instance, any claimant bringing a lawsuit can only obtain a very specific court document or what the individual they are suing was to receive on the interest. This can serve as a disincentive to bringing the lawsuit in the first place.

However, one of the problems that tend to come up with family limited partnerships companies is when people do not maintain them properly. Specifically, if their very specific rules are not followed, every single benefit that comes from these entities can be jeopardized. For example, if personal is mixed with business in terms of assets, the IRS may disregard the entity when it comes to certain benefits. You have to make sure the documentation and operation of these entities is regularly reviewed and any issues fixed right away, as neglecting any legal formalities could cause the entity to be completely disregarded.

Another major issue is that because the state tax exemptions have increased significantly over time, these entities were arguably created to avoid gift or state taxes that are not necessarily still relevant. In fact, some valuation discounts may have actually become detrimental, tempting some into dissolving the entities; however, be careful about doing this, as there may soon be new transfer tax changes put in place.

very estate plan that includes an entity like this needs to ensure that advisory team is reviewing that entity; determining whether all the reasons for its existence are still in place and; if not; what should be done to address the issue. In some cases, your estate planning attorney can take additional steps to enhance any original goals you had in setting these up in the first place by conducting this regular review.

Irrevocable Trusts & Swap Powers

Another issue that needs to be regularly watched are swap powers with respect to an irrevocable trust. “Swap powers” refer to any powers that the settlor has been provided with which allow them to swap or substitute personal assets for trust assets that are of equivalent value.

However, sometimes, they are not closely watched, which can result in highly consequential income tax repercussions. Make sure that, if you have any irrevocable trusts, you and the trustee are aware of any swap powers that exist and you regularly review the trust every year with your attorney. In this case, you and your advisers need to monitor the account. In addition, your estate planning attorney should always be kept in the loop in order to ensure that any swap is done in accordance with the law and to make sure that any tax advisers you have are aware of all this.

Select The Site Of Your Trust

Many people also do not realize that you can choose a different jurisdiction in terms of where your trust is based in order to strategically control state income taxes. The same thing goes for ensuring that state laws are supportive of whatever goals you have for your trust. In reality, some states are simply more protective of trust assets than others.

Contact The Very Best Florida Estate Planning Attorneys

Your estate planning attorney should be able to provide you the pros and cons of every possible location with which to cite your trust. If you live in Florida, contact our experienced Orlando estate planning attorneys at Gierach and Gierach, P.A. today to find out how we can best serve you.

Resource:

forbes.com/sites/martinshenkman/2019/05/27/does-your-estate-plan-fall-prey-to-3-big-tax-issues/#415ce8d07025