Estate Planning for the Wealthy Video from Savant Wealth Management

Download our complimentary guide books, checklists, and other useful financial resources at savantwealth.com/guides. Welcome to today’s Savant live webinar. Thank you so much for joining us. My name is Alaina Davalos. I am a wealth transfer advisor here at Savant’s Atlanta office. And today we will be discussing estate planning for the wealthy. Joining me as well is going to be Dominick Parillo. Welcome Dom. Hi Alaina. Thanks for having me. Looking forward to our program today. Just some introductory remarks for our webinar. While we will not be sending out today’s actual slides, we will be addressing some questions at the end of the presentation. So please feel free to add your questions to the Q&A box at the bottom of your screen, if you will also receive a full copy of this webinar in your email in the next couple of days, as well as our list of estate planning definitions for you to reference. Again, thank you so much for joining us. You know we have a great program scheduled for y’all today. Before we dive into these topics though you know we do want to make sure we do a brief overview of the basic elements of estate planning so that we’re all on the same page. Then because a lot of what we’re going to cover today has to do with trusts, we’re going to do a deeper dive into trust fundamentals. You know make sure you all have that lingo down, know the different terms, all those things. Then we’ll talk about the different goals of advanced estate planning both from a tax planning and asset protection standpoint before we look into lifetime gifting. And we will finish out with trust maintenance. All of these are very important topics when you have significant wealth and you are looking to have the best estate plan possible. After that, like I said, we’ll finish with some of your questions. So let’s begin. Dom, can you get us started? Perfect. Thanks for the introductions, Alaina. So always very, very important as we begin an estate planning conversation to make sure that everyone has a good handle on the basics because a lot of the concepts that we’re going to be covering today build off of each other. So we wanted to make sure that everyone has a sort of a general idea of why estate planning is important. And I think if you’re joining us, you already know that it is. So hopefully there’s a lot of good information here for you to take back to your own estate planning attorney or speak with your financial advisory team on, but I want to make sure everybody has good working knowledge of some definitions and again some of those core elements to any good estate plan. So on the next slide, we’ll define estate plan at a high level and really it’s the formalized process of creating a set of legal documents, asset ownership structures, beneficiary designations that will really determine how your assets will pass when you die. And it’s important for many people when they’re creating their estate plan to make sure that they’re minimizing complexity, time, expense, unexpected income taxes, estate taxes. We’re going to cover some of those concepts today as well. And really making sure that the wealth is left in a structure that protects loved ones, people that are important to you. So you can accomplish all of this with a formal estate plan. Believe it or not, everybody has a default plan. You just lose control over these issues that we’re going to cover if you’re relying on default state intestacy statutes. Dying in testate means that you die without a will. Speaking of will, on the next slide, we’ll cover some of the basic elements to any good estate plan. And there’s really, I would say, three must-have documents. A fourth one, mainly revocable living trusts is definitely an advantage, but not necessarily something that all people put in place. Alaina is going to speak about trusts in more depth in our next session. But again, core documents really important for everyone to have. Power of attorney for property and healthcare documents. These are incapacity planning documents. That often gets overlooked when we think about estate planning. Most people think about what happens when I pass away. How are my assets distributed? But really important to have the POAS in place. Power of attorney POA. Living wills and advanced directives supplement healthcare power of attorney documents. We’re going to cover those in more detail in the next few slides. And then of course your last will in testament is the document that distributes your probate assets to your family, your loved ones when you pass away. Revocable living trusts, as Alaina is going to explain in a moment, is a way to distribute your assets to your loved ones without going through probate. And you can do advanced asset protection structures, estate tax sheltering techniques and so forth with a trust. You get a lot of benefits there. So next slide we have some terminology on the people that will ultimately play a role in your estate plan during lifetime and post death. When we use the term agent in our presentation and again as Alaina said we’re going to provide a list of these definitions along with a recording of this webinar after our presentation but the agent is the person that you designate in your power of attorney for health care or property document that’s going to have the authority to act on your behalf to make those decisions. The power of attorney document is the document that allows you to nominate the agent and spell out their powers and what they’re able to do. The executive is the person that you name in your last will in testament that actually administers your probate estate. Oftentimes, your executive is signing your final income tax return or an estate tax return form 706. What’s a good way, Alaina, to remember 706? What’s the What’s the So, a 706 is like you’re 6 feet under. You’ve got a six because you’re down there under the ground. You’ll never forget again. A 709 is a gift tax return, but that’s a good way to remember the 706. You know the trustee is the person you nominate in a trust document or a testimeamentary trust created under your will that’s in charge of managing assets for beneficiaries in a fiduciary capacity. A guardian is a person that you nominate in your will that typically will have custody of minor children until they reach adulthood. It can also refer to a legal process to appoint a guardian for an incapacitated person. Similar to a conservator typically a conservator is a courtappointed individual who can manage finances for an incapacitated person. The guardian typically makes health care decisions you know decisions regarding personal aspects of an incapacitated person’s life. So like I said before, incapacity planning often overlooked doesn’t get emphasized on the next slide. We’ll go into a little bit more detail on these power of attorney documents that we think everybody should have. And if you and if you don’t have an estate plan yet, definitely start thinking about u you know who you want to be in charge of making these various decisions, how you want your assets to be distributed. It’s important to have that in your mind before you engage your attorney to actually do your documents. We at Savant are always happy to help. You think through some of these decisions. But again from a power of attorney or property standpoint, you the principal would create a document that nominates an agent who makes financial decisions for you, if you’re incapacitated. You don’t have to be incapacitated to have an agent have help. A lot of people that get up in age like the idea of having a child, an adult child step in to manage finances, an agent can help in that manner as well because basically any asset in your name not titled to a trust will be in the agent’s purview to manage on your behalf. A lot of states have statutory forms. When you meet with your attorney, your attorney will ultimately design the form. But statutory forms are really important because banks and financial institutions are often more familiar with those state statutory forms that the POA statute actually has the language that your attorney would include in your power of attorney document. You know having a lineup of decision makers, right? More than one agent is important just in case the agent that you name passes away before you or declines to accept the appointment. Really important to include digital asset authority so you can give your agent the power to access your email, Facebook, Amazon type accounts, dig digital assets. So very key document. Without this document, if you become incapacitated, a court’s going to appoint a guardian or conservator o over you. And that’s just a process that you’re generally going to want to avoid. So don’t overlook the POA for property. On the health care side of things, very similar except the agent’s going to make healthc care decisions on your behalf when you’re unable to do so. To supplement the health care power of attorney, it’s always important to think about whether a living will or advanced directive makes sense for you. I mentioned that term earlier. A living will declaration or advanced directive allows you to specify how you want your endof life decisions to be handled, whether or not you want artificial nutrition or hydration to be withdrawn or administered. And that can relieve the burden of decision-m from your actual agents shoulders if that difficult decision ever has to be made. If you’re in a terminal state and you know that that’s a conversation that needs to be had with your physician. Always good to give copies of your power of attorney for healthcare document after you have them executed to your primary care physician or team of health care professionals. So really core documents. Hopefully that gives you guys an understanding of what these documents are for, why they’re important. But remember, power of attorney documents only are effective during your lifetime. When you pass away, your power of attorney’s authority ends, right? They no longer have decision-making authority, and your estate is either administered by your executive or a trustee depending on what documents you have in place and how assets are titled. So on the next slide we pivot into asset distribution after you pass away and I mentioned this earlier but your will and this is again a foundational estate planning document. Most people when they think of estate planning they think of my will my last will in testament. This is the document that distributes your probate estate when you pass away. Probate is the court supervised process of administering a deedence estate, distributing their assets either without a will or in accordance with their will. An executive is formally appointed and qualified through the process. An inventory of your assets and liabilities are provided to the probate clerk. List of your legal beneficiaries. Creditors have to be noticed when you pass away so that they can collect any just debts that you might owe. So it looks different in every jurisdiction, state by state and even county by county. But it is a process that does take some time. There are some formalities and often there are extra expenses involved because families are hiring attorneys to help assist with the paperwork and all the steps involved and so forth. But any assets in your name as an individual that don’t have a beneficiary designation or are not titled to a trust will ultimately go through probate and to pass in accordance with your will when you pass away. I mentioned that assets can be titled to a trust. Assets actually titled to a revocable living trust avoid probate at death. Your trustee and this is one of the big advantages of having a revocable living trust have the legal authority to distribute your assets without the need to go through the formal court process. But oftentimes the trustee is coordinating with an executive if there is a loose asset, some probate exposure. If you have a trust plan in place, it’s important to actually fund your trust and make sure you’re minimizing your probate exposure. To do that, you actually change title on your investment accounts, for example, to the name of your trust. Your attorney can change title on your residence to the name of your trust from yourself as an individual, right? Or if it’s a joint property, you know, from you, your spouse to your trust. That’s how you actually fund a trust and avoid probate. Joint assets, I just mentioned that are assets owned by two or more people. Often husband and wife. And when you pass away, if you have a joint asset, title automatically transfers to the surviving account owner. And that happens without probate. There’s a right of survivorship in any joint teny property and the surviving account owner essentially just becomes the new owner. But if that account earns death, if it’s in their name individually, then it would go through probate pass in accordance with the will. So the last way assets can pass that I did mention was by beneficiary designation. Beneficiaries can be put on accounts like IAS, 401ks, life insurance policies. And the important thing to remember with beneficiary designations is the beneficiary that you put on the beneficiary designation form itself. That individual receives that account or that asset regardless of what your will or what your trust says. And there’s often a misconception here, right? Sometimes people think that that their will, for example, covers all their assets. Not true. Not true. The beneficiary designation trumps or supersedes written estate plan. So as part of the estate planning process, you get your legal documents put in place or updated. It’s important to review title, beneficiary designation, so you have confidence that your assets actually pass to the people and in the right structure that you’re putting in place with your estate planning attorney. So that’s a pretty good I think primer on some of these foundational concepts. Alaina, if you could be so kind to take us through some more trust concepts so we have a good understanding there. Yeah, for sure. No, thanks Dom. That was a really good intro into estate planning and a review of the documents that everyone needs. But you know this webinar is estate planning for the wealthy. So when we start talking about significant wealth being passed from one generation to the next typically there is a little bit more planning that is needed in order to successfully and easily transfer that wealth. So let’s move on to some trust fundamentals. So to begin with, what is a trust? The American Bar Association defines a trust as a fiduciary relationship where one party called the guarantor transfers ownership of property or assets to another party called the trustee for the benefit of a third party called the beneficiary. The trustee has a legal duty to manage the assets according to the guarantor’s instructions for the benefit of the beneficiary. So that is a mouthful. Pretty much what this means is that the trustee is holding the guarantor’s property for the benefit of the beneficiary. The trustee has the legal ownership over the property. It’s the trustee that opens the trust bank account. The trustee applies for the EIN, which is like the trust social security number if it needs one. The trustee decides which assets to invest in or which real estate to own. The trustee also decides when to sell the trust assets. The trustee, however, does not benefit from the property itself. The trustee makes distributions of the trust assets to the beneficiary. The trust agreement, which hopefully is written down, will say when those distributions can be made. It could say something like when the beneficiary reaches age 30, they get 50% of the trust distributed outright to them. When the beneficiary reaches age 35, they get the full trust balance. And then during those interim years, the trustee can make distributions to the beneficiary for any reason. The terms of the trust will stipulate when and how much of the trust can be distributed. So these are the big terms that I want you to remember to take away from today’s session and that Dom and I are going to refer to repeatedly today. So the guarantor is the person who creates the trust and there’s usually only one maybe two grandours if it’s a married couple but usually you’ll only see one. The trustee as we just discussed that person can be an individual or a corporate trustee. There are professional companies out there who will for a fee and under certain terms agree to act as trustee of a trust and generally the trustee is responsible for trust management. Like I said how assets are invested, purchased, sold, things like that. They’re also responsible for making those distributions to the beneficiary as well as filing tax returns for the trust and generally adhering to the other terms of the trust. There may be one trustee then a successor named. There may be co-rustees meaning two or more people are playing this role. The trust should also say if there are two plus trustees whether those people can act independently of each other or whether they’re required to act jointly because that’s important information to know. Now for the beneficiary there are two types of beneficiaries generally. The first is the current beneficiary. You know this can be one person or a group but it’s who is entitled to receive the benefit of the trust fund. Now for example the trustee could say you know hey trustee you can make distributions from the trust to any of my children for their education including college and postgrad. My children are the current beneficiaries. There is however another class of beneficiary and that’s the contingent beneficiary. The contingent beneficiary kicks in if the current beneficiary or beneficiaries die. And just because a beneficiary dies does not mean that a trust dies or terminates. Now let me repeat that. Just because the beneficiary dies does not mean the trust dies. The same concept applies to a trustee. Just because something happens to the trustee does not mean that the trust automatically goes away. Trusts are typically structured with a series of if this happens then X and if that happens then why. So that contingent beneficiary is who kicks in if the current beneficiary is no longer with us. For example, my trust says, “Trustee, you can make distributions to my son for his education. If my son is no longer living, then you can make distributions to my grandchildren.” Not that I am old enough to have grandchildren. This is just a theory. But my grandchildren are the contingent beneficiaries. If my son is no longer around, then my grandchildren become those current beneficiaries. So this distribution to further beneficiaries. This is usually either made per sturppies or per capita. Her sturppies comes from the Latin comes from Latin and means by branch. Let’s say you have three children. One of them predescases you leaving two grandchildren with a per sturppies distribution. 1/3 would go to child one, one/3 would go to child two and 1/3 would be split between the two grandchildren. Per capita means by head. In that same scenario with a per capita distribution, child one would receive 1/4, child two would receive 1/4, and each grandchild would receive 1/4. Four heads, they split equally. So that is another important decision to think through when you are setting up your state plan. And I will say though most people do choose a per sturppies distribution but you always have that choice. The other important topic is the distribution standard. So this is the what and the when. What can my trustee distribute out of the trust to the beneficiary and when can they distribute it? Trust will usually bifurcate between what the trustee can do with trust principle which is what the guarantor originally put into the trust and income which is what the trust has earned since that principle was contributed. Sometimes there’s no difference. You know the trust will say, “Okay, trustee, you can make distributions of principal and income.” Other times, it’ll say, “Trustee, keep the principal in the trust, but distribute out all of the income to the beneficiary.” Distributions of principal because they can be significantly more than the distributions of the income. They’re usually limited to a distribution standard. And the most common standard which comes directly from the IRS from the tax code is for the beneficiary’s health education maintenance and support. That is the standard. I think Dom and I will both have health, education, maintenance, and support written onto our gravestones one day because we talk about it so often. This definition is written into the tax code. So a lot of attorneys use it in their planning. However, this distribution standard could veer away from that hem standard. It could also be unlimited. You know the trust could say, “Trustee, you can make distributions of the income and principal to my beneficiaries for any reason using your best judgment.” That’s also a very common distribution standard depending on who the trustee is. So the last term that you may hear us use is the power of appointment. As I mentioned, the trust will dictate what happens at the current beneficiary’s death. Sometimes though, that beneficiary will be given a power of appointment to redirect the trust fund at their death. That power of appointment could be narrow, say to only descendants of mine, the guarantor, or it could be as broad as to anyone that the beneficiary desires. The beneficiary usually has to exercise this power of appointment by notifying the trustee either in writing during their lifetime or in their own estate planning documents. So this can be a pretty big power. So if you do include this power in your own trust or in your own plan, do make sure you understand the ramifications. So speaking of your own trust, choosing the beneficiary and the trustee are usually going to be the biggest decisions you’ll make for your trust. So make sure that you spend some time thinking about those people before you sign any documents or make any transfers. Sometimes you as the guarantor of the trust can change these people. That’s possible if the trust is revocable, and you heard Dom mention that earlier, a revocable living trust. Sometimes though, you can’t change these people or any of the trust terms if the trust is irrevocable. So a revocable trust is the tool we see in many clients estate plans because it’s a tool most often used to transfer assets at death, but also to avoid probate. So Dom talked earlier about that probate process when you have a last will and testament. But I’m just going to go into a little bit more detail about what a revocable trust does to avoid that probate process. The guarantor sets up that they have written down in writing a revocable living trust. And typically in that document, they reserve the power to amend the revocable trust at any point while they are living and have testamentary capacity, which pretty much means that they understand what they’re signing. These trusts typically do not provide any asset protection and they don’t really provide any tax planning benefits to the grand tour while the guarantor is living. So a revocable living trust is some in some states it’s very important to have as part of your estate plan because that probate process that Dom talked about is very tedious, very time consuming and just an overall pain. So a revocable living trust is something a lot of people have whether they are wealthy or whether they are not. However, the revocable living trust at the guarantor’s death, they typically become irrevocable and that’s when tax and asset protection goals can kick in. One thing to note, the living part of a revocable living trust means that it was created while the guarantor was alive. A living trust can be revokable or irrevocable. A testamentary trust on the other hand that means a trust created under a last will and testament. Get it? Testamentary trust. It’s usually only irrevocable because the guarantor who created it under their will, you know, for their will to come into effect, the guarantor has to be dead. So once you’re dead, you can’t really change your trust. That’s how that typically works. Irrevocable trusts cannot be changed by the guarantor. I’m going to repeat that. Irrevocable trusts cannot be changed by the guarantor. They are irrevocable, unmendable, unchangeable. Because the guarantor cannot change them. They do offer significant asset protection and tax planning opportunities which can be very important if you have established great wealth. So how do they do this? Because when assets are put into an irrevocable trust that the guarantor cannot change, once the guarantor puts those assets into the trust, they are transferring ownership of the asset to the trustee and the guarantor has made a gift. If I give you $100, that’s yours. You can spend it however you want. I don’t have any control over that $100 anymore. However, if I give $100 to the trustee of an irrevocable trust with trust terms that I cannot change, I still have no control over how that trustee spends the $100, you know so long as it complies with the trust terms. But I have written down more instructions on how that $100 can be spent and on whom I’ve established the beneficiary. So you’re making a gift, but you are putting rules and regulations around it. And transfers to irrevocable trusts, if they are made during your lifetime while you’re still living, they are subject to gift tax laws. If you transfer assets to an irrevocable trust set up under your will, for example, they are subject to estate tax laws. But generally, gift tax laws and estate tax laws parallel each other. They just come into effect at different times. And pretty much anytime you transfer assets to someone other than your spouse, and that includes trust, you are subject to those gift tax laws. There is an exemption amount that DAM is going to go over in a few minutes, but generally if you create an irrevocable trust during your lifetime and you transfer assets into that trust that are valued at more than $19,000 per beneficiary of the trust, you do have to file a 709 gift tax return notifying the IRS that you’ve used some of your lifetime exemption amount. So that’s what Dom mentioned earlier. That’s 709 gift tax return. It’s a nine. It’s like you’re above ground. Easy way to remember it. So for an example, if I transfer $100,000 to a trust for my two children, I can give $38,000 19,000* 2 without using any of my lifetime exemption amount. But I would have to use I would have to let the IRS know that I’ve used 62,000 of my lifetime exemption to make that gift. These gift tax laws typically do not apply to transfers to revocable trusts because you as the guarantor still maintain control over how those assets are managed because you can change that trust at any time. That’s a really big difference between a revocable trust and an irrevocable trust. Are you making a gift or not? So if you’re thinking about including trust in your estate plan, and Dom is going to tell you one reason why you would want to do that, it’s going to be a balancing act. When you’re thinking about your goals and the types of trust that are available to you, you’ll need to consider how much control you want to retain over those trust assets. You’ll also need to consider who you’re naming as trustee because remember this may not be an appointment that you can change easily depending on the type of trust that you have. Also, especially with irrevocable trusts, you have to weigh the income tax advantages and disadvantages. With some irrevocable trusts, the guarantor will continue to pay the income taxes. With other types of irrevocable trusts, the trust itself will pay income taxes and sometimes the beneficiary will pay income taxes if the income is distributed out to the beneficiary. Also, typically with gifts to anyone, whether they’re in trust or not, that asset retains the guarantor’s basis for income tax purposes and does not get a step up in basis at the guarantor’s death. Meaning that if the beneficiary goes to sell the asset, they will pay income taxes on the growth between when the guarantor originally purchased that asset and the time of the sale. That can be a huge income tax consideration for both the guarantor and the beneficiary. So a lot of balancing has to be considered. And now, I know this all seems like a lot of work. Dom, can you tell us some reasons why we would want to consider using a trust? Definitely. Great overview of trust in general, Alaina. And this discussion would pertain to revocable living trusts, testamentary trusts created under a will or even some of the irrevocable trusts that Alaina had mentioned, that are used for gifting purposes. So there’s really two tax systems that we tend as financial and estate planners to focus on in the US. Income tax, it’s not something necessarily we’re going to get into today, but some of the income tax concepts that Alaina brought up were capital gains tax when she was speaking about appreciation, interest and dividends, you know, income distributions. The other tax that we are going to focus on is transfer tax otherwise known as estate tax or inheritance tax in some states. And on the next slide we’ll start by discussing the federal estate tax system. Again, when you pass away, if an asset is included in your estate for estate tax purposes, meaning that you haven’t gifted it during the lifetime and given up the control of the asset, it’s potentially subject to federal estate tax. Again, this is a transfer on the value of wealth as of the date you pass away. And there’s been a lot of discussion leading up to the beginning of this year 2026 about what the federal state tax exemption was going to be. So here’s a little historical view. You may recall in 2017 the Tax Cuts and Jobs Act was passed that essentially doubled the federal estate tax exemption from 5 to 10 million inflation adjusted that took effect in 2018 with an 11.7 million inflation adjusted exemption. That is a per person exemption by the way. Well that Tax Cuts and Jobs Act exemption was originally set to expire at the end of 2025 or sunset but Alaina the OBBA One Big Beautiful Bill Act was passed that became effective at the beginning of this year 2026 that actually make is going to make permanent that tax cuts and jobs act exemption. So for 2026, we now have a $15 million per person federal estate tax exemption that’s going to be adjusted for inflation, no sunset in the current law. Meaning that it’s permanent until Congress changes it later on if so. Now what that means that as an individual you can pass $15 million of wealth federally estate tax free to anybody that you want. If you’re married, you get two exemptions. It’s $30 million for a married couple. One unique thing about the federal system is that if you are married, the exemption is portable between spouses. Meaning that at the first death, if the first to die doesn’t have enough assets to use up their federal exemption or everything’s going to the spouse and there’s a marital deduction, the surviving spouse can simply file a form 706 and make a portability election to add the unused exemption to their own number. Very important feature. Provides a lot of flexibility. But because the state tax exemptions can change, it’s important to keep track of your net worth over time. That’s something that a financial adviser or your legal team can assist with. So a lot of people don’t pay or are, you know, have enough assets to be subject to federal estate tax. If you are, there’s gifting techniques that we can discuss. And even if you don’t make gifts for estate tax purposes, it’s still good to understand the gift tax system in in general. And Alaina alluded to some of these things in her discussion of funding revocable trust. So on the next slide, let’s talk about some simple gifting techniques. Again, that $19,000 number is coming back. $19,000 is the annual exclusion amount that you can gift without the need to file a gift tax return form 709 as Alaina said without using up any of your lifetime federal estate tax exemption when you gift beyond the $19,000 number. No gift tax is due technically even if you filed that 709. You’re just using up your lifetime exemption. Really really important to understand that because this is often misunderstood. Okay. And as Alaina said whatever your tax basis in that gifted asset is that transfers to the beneficiary. So then there’s potential capital gains to be paid if the beneficiary sells the asset for example. Here’s an important exception. If you make gifts directly to an individual’s you know college educational institution, you know basically you pay the tuition on their behalf directly. That’s not subject to the $19,000 limit. So you can pay college tuition so long as you’re paying the institution directly. You can’t write a check to your son or daughter or niece or nephew, right? And then have them pay the tuition. You have to actually write it to the university. You’re not subject to those annual exemption numbers above. And also same concept applies for direct medical payments. So if you have a family member or loved one, someone in your community that’s struggling has a has a health issue, you know maybe struggling with those medical expenses, you can actually pay those medical expenses on behalf of that loved one. And again, no annual exclusion would apply. You just have to pay the doctor directly. 529 plans are education savings vehicles that allow you to open an account for a child or niece or nephew, grandchild, and you can save on a tax-free basis for college if the money is used for qualified higher education expenses generally. And you can get an income tax deduction in your state income tax return as well. Well, there’s a special rule that can allow you in one single tax year to basically use up five years of annual exclusion gifts. It’s called the front loding. So you can put a lump sum in beyond 19,000 right per grandchild for example. But that would require a gift tax return 709 to make that election and then you just can’t make any other gifts to that individual you know in excess of those annual exclusion amounts in the five-year period. So just one limitation that’s really popular to do just a way to get money in so there’s more time for compounding if the money is invested. And then gifts can be made in different structures. Alaina was speaking about irrevocable trusts. Those are very important. If you want to have some degree of control over how those funds can be used once they’re gifted, but you can also make outright gifts to beneficiaries. You can just write them a check. You know be put in their name. If they’re a minor, it has to be held in a uniform transfer to minors act account with a custodian, often the parent who then would manage and use those money for the minor beneficiary’s benefit. But then when that minor becomes an adult 18 or 25, it depends on the state law that applies, then they have full control over the assets. Trusts are way to basically hold money for the benefit of a young beneficiary so the monies can be properly stewarded until a future age of maturity. So that’s why trusts are often favored for larger gifts versus outright gifts. So on the next slide got a couple of examples of some popular irrevocable trust gift techniques. Qualified personal residents allow you to I’m sorry, qualified personal residence trusts allow you to contribute a home or a vacation property that you own. And you retain a the right to use the property and that can actually make the gift less valuable for gift tax purposes because of that retained interest rate. So it’s a way to have discounting apply to a gift. The grantor retained annuity trusts are essentially trusts that pay the guarantor, the person that created the trust, an annual dollar amount, it’s called an annuity, back every year during the term of the trust. And they’re often used to transfer appreciation from contributed assets to children or other loved ones for minimal or no gift tax implications. Charitable e trusts are split interest trusts where a charity would receive a payment annually for the term of the trust but the remainder would then pass to non-charitable beneficiaries, children, grandchildren. Spousal lifetime access trusts were really popular leading up to that sunset of you know at the end of 2025. It never happened but it was a way to basically arbitrage and capture the bonus exemption. So these are just examples of popular vehicles that are used to manage estate tax. The idea is during your lifetime you can contribute assets that you own to a trust with the idea that if it’s structured properly those assets won’t be included in your estate for estate tax purposes. But they’re often done for more than just estate tax planning purposes. It’s done to you know make gifts to loved ones during lifetimes. You can get the benefit and enjoyment out of the property as well. If you have life insurance Inlets are a popular vehicle revocable life insurance trust that can shelter death benefits from estate tax. All right enough about federal estate tax. You might be saying I don’t have $30 million or $15 million. Do I really have to worry about this? This sounds complicated. Just remember that there are 12 states and the District of Columbia that have a separate state based estate tax that applies and four states have an inheritance tax. It’s a transfer tax except the person who inherits the money technically, you know would pay the tax based on the value of the assets they receive. So if you live in a state that has state estate tax, it’s important to review your estate plan and make sure that you have proper provisions in place. Because the state exemptions are often far less than the $15 million federal exemption. So on the next slide, we have a quick example we’ll run through as to why this is important. Illinois has a $4 million per person exemption. No portability. So the spouse doesn’t get to carry over the unused $4 million exemption. So you have to you have to do special planning to capture that exemption at the first death. Otherwise, it’s loss. Well, in this example, this a business owner. They have just under $19 million of total estate assets. Federally, you know as a couple, no estate tax. Again, they’re under that $30 million estate tax exemption limit combined. But in Illinois, without special planning in place, they would pay about $2.1 million in state-based estate tax with some simple, and I’m a little biased, but some simple adjustments or features in their estate plan, called the it’s a credit shelter trust technique. They can actually reduce their estate tax exposure from $2.1 million with the second death down to 1.6 million, let’s say. So more than $500,000 of estate tax savings just by implementing the right structure in their written estate planning documents. So on the next slide you’ll this is what that looks like just to illustrate the concept. This is a typical design we come across. It’s a joint trust u two guarantors in this case husband and wife and it just continues to be revocable and amendable by the surviving spouse at the first death. This would also apply if everything is just paid outright to the spouse at the first death or if you die with no estate plan and you’re married. Everything just becomes generally the surviving spouse’s asset because you have own property jointly or with beneficiary designations. That means that now everything the entire $18.8 million is now in the survivors estate for estate tax purposes because they have full control over those assets. On the next slide and Alaina mentioned this term earlier right you can have a portion of the trust right if it’s a joint trust or the entire trust become irrevocable after the first death and you can establish what’s called the family or credit shelter trust to hold money for the benefit of the spouse or other loved one and it won’t be included in their estate for estate tax purposes oftentimes the PEMS or health education maintenance support standard is applied for distribution purposes and those again are from the IRS you know tax code it’s considered an ascertainable standard which keeps the amounts out of that beneficiary’s estate if they’re also serving as trustee. So this is something that often gets missed. A lot of people again they’re not necessarily focusing on estate tax because they’re thinking federal and they’re missing this very important state estate tax planning opportunity. So this is a reason people do trusts for federal and state-based estate tax. Alaina there’s another reason that people put trust in place and it’s for asset protection. Can you go into that a little bit for us please? Of course for sure. So one of the things that you know when you have great wealth it is sad when that wealth goes to people or entities that you don’t necessarily want it to go to. And so one of the big benefits of trust is this idea of asset protection. Making sure that this wealth that you’ve accumulated stays either with you or with your beneficiaries, your descendants, wherever you want it to go. You know making sure it’s not lost in divorce or it’s not lost to taxes like Dom mentioned. And so these I’m going to talk mostly about domestic asset protection strategies using trusts. This discussion does not include anything offshore. No Cayman Islands, no New Calonia, nothing like that. These are basic strategies that most anyone can take advantage of with a low degree of risk. And so when you’re looking for asset protection, the first thing you need to ask yourself and your advisors is who are you looking to protect your assets from? So the most common creditor I hear about from clients is the IRS paying taxes, limiting your tax liability. Dom just gave you a really good recap about tax planning, so I’m going to skip over that one. The next creditor that clients worry about is an ex spouse, whether that’s current or future. Remember, when we’re looking at trust and asset protection, you’re not just thinking about your own creditors, but also your descendants as well. So as much as you love your daughter or your son-in-law right now, you know, you may not feel the same way when they’re getting divorced one day. There are also two sort of general categories of creditors. There is the known and the unknown. Known creditors you can keep at bay today with irrevocable trusts depending on state laws. But definitely at your death for your children when you create testamentary trust for their benefit. Unknown creditors are just that unknown. You know no one knows what the future holds. Anyone can be sued for anything at any time. How well prepared you are will determine how quickly a lawsuit can be thrown out and how much of your assets can be protected. So Dom showed you a similar chart earlier. If you’re not doing tax planning with irrevocable trust because you’re not facing substantial federal or state estate tax exposure, you may still want to include testamentary irrevocable trust for your descendants in your estate plan. So I want you to focus on those big orange circles at the bottom, the orange one and the turquoise. Those are the trusts for your kids. These testamentary trusts which are either created under your last will and testament or under your revocable living trust are created at your death. Typically each of your children would have their own trust, but you may also see something called a pot trust where all of your kids are beneficiaries of one big pot of money. You may also have what I call distribution trusts. These are usually for younger children who have yet to reach the legal age of adulthood and your goal is to get them to an age where they can handle a large sum of money. Distribution trusts are usually structured with the principal meaning what’s originally contributed to the trust being distributed to the child in certain percentages at certain ages. So let’s say they receive a distribution of 25% at age 25, 50% of the trust at age 30, and the balance at age 35. At age 35, the trust terminates. During those interim years, the trustee, who is usually not the child, can make distributions to the beneficiary to the child for their best interest. For this example though, you’re going to see we have separate trusts. We have child one trust, child two trust. And these trusts are going to be lifetime descendants’ trusts. These trusts are going to cascade from one generation to the next. So not only would the trust go to your child, but then your grandchild, your great-grandchildren. So at the death of you and your spouse, 50% goes into child one’s trust, 50% goes to child two’s trust. Their trusts have nothing to do with each other. So you don’t need to worry about fighting or conflicting ideas about management, nothing like that. In this example, the trustee who may be that child depending on the child’s age and financial maturity can make distributions of the principal and income to the child for their health, education, maintenance, and support that hem standard I talked about earlier. This trust may protect the child’s inheritance from divorce, creditors, and future estate taxes. In this example, those walls of the trust would be protecting their inheritance of about $3.5 million. And with good drafting of your estate planning documents, you can provide your child with substantial flexibility to manage this trust, benefiting themselves and their families for generations to come. So this is really how you turn wealth into generational wealth by giving it these protective walls. Like I said, these are cascading trusts at your child’s death. That trust fund goes to their kids and so on for as many years as your state allows. Some states are about 120 years, some are 360, some are a thousand, some are unlimited. So there’s rules. There’s no rule as to when trusts have to terminate depending on your state law. So what else do you need to think about when creating these trusts for your descendant? How much flexibility do you want to give them versus how much control should the trustee retain? You know your children best at this stage of your lives. And the good thing about these trusts is because they’re typically created under a will or revocable trust, you can change them at any point. You can also decide to give them that power of appointment that I discussed earlier. You know you write down in your will that the trust passes to your grandchildren at your child’s death, but they have a power of appointment they can exercise in their own estate planning documents that allows them to deviate from that structure. You can make this power as broad or as narrow as you’d like, meaning who the groups of people can be that your child can leave their trust fund to. Some examples include descendants of yours, spouses, charities, or anyone. You know that’s really the broadest you can get. And remember when I said that your child may be the trustee of their own trust? That’s possible with the HEM standard, health, education, maintenance, and support. All of y’all are going to have this engraved on your graves also, just like me and Dom by the end of this webinar. So long as you know the trust is limited to that distribution standard, a child generally can be trustee of their own trust. An independent trustee, meaning someone who has nothing to gain from the trust that isn’t a beneficiary, can generally be given an even broader distribution standard. They can make distributions for any reason. Why? Because they don’t have anything to gain. So presumably, they’re making a smart decision because the trustee is a fiduciary. They are held to a higher standard of care in managing trust assets which again is why picking the trustee is a very important decision. A lot of times what trust agreements will include is the beneficiary’s ability to appoint a future trustee. So at that beneficiary’s death they can name the future trustee for their children. And that’s a very powerful power. All of this trust talk you know may have you thinking about gifting and whether you want to gift with warm or cold hands, meaning during life or at death. A lot of people prefer to see their gifts distributed to loved ones and watch them enjoy themselves. You know remember that gifts at any point are subject to gift tax laws like Dom discussed and that you can always make lifetime gifts outright. You know go ahead, write someone a check for $5,000. Pay for your grandkids school. Make that outright gift. But what if you want your lifetime gift to include the asset protection of a trust? Or if you want to use trust for tax planning? This is a whole topic in and of itself. And because we are rapidly running out of time and Dom has already given us a brief overview of gifting, I’m going to go through this section pretty quickly. So what’s really important when it comes to gifting is choosing beneficiaries or that group of beneficiaries and then choosing the assets that you’re going to gift. So who are you giving to? Are you giving in trust or outright? And what are you giving to? Typically for tax planning purposes, the best assets to gift are what we call hard to value assets. Things like real estate, business interests, liquid securities. They have a given value any day of the week based on the stock market, but the value of your real estate is typically very dependent on the market itself. So that’s what we call a hard to value asset. So this slideshow, this slide that you all see right here, this shows what two different spousal gift trusts look like. There are different beneficiaries. There are different trust terms. When you work with your attorney, you’ll set up these trusts that are similar but not too similar because you want to make sure that you’re giving up enough control. So what does that mean? If everything has gone well and gifts have been made, you’ve transferred those assets, what do you do then? So there’s a few steps to the gifting process. You know first, like I said, choosing the beneficiaries in trust or outright. You know create those irrevocable trusts if that’s what you’re going to do. Next, prepare the assets for transfer. You know you may need to get approval or permission from business partners, spouses, things like that. Get all of your ducks in a row. Third, actually transfer the assets, sign all the paperwork. Next, you have to have valuations. So once you have a date and you have discernably gifted assets, start working on the valuations. The IRS requires you to provide adequate disclosure. And what that means really depends on the assets themselves. Lastly, you file those trust agreements, the transfer documents, anything related to these transactions with the 709 gift tax return 9 above the ground because you’re still alive. That gift tax return is due on April 15th, tax day of the year after the gift is made along with your personal income tax return. However, you can also file an extension if you’re extending your personal returns as well. Dom, quick intro to trust maintenance. Absolutely. And we’ll take some questions next. But once you get your estate plan updated in place, the fund does not stop depending on whether you have created revocable or irrevocable trusts. There are annual tax filings that have to be made. So like Lena said, if you have a revocable trust, there’s no separate tax filing because you have full control. Any accounts are often registered under your social security number as the granter. So it really doesn’t change anything from an annual income tax filing standpoint. But when you a trust becomes irrevocable at your death or you create a irrevocable trust during your lifetime for gifting purposes, there are annual tax filings that have to be done to report trust income to the IRS. It’s taxed a little bit differently. And also if you’re a trustee in the future and you’re managing assets for beneficiaries of an irrevocable trust you’re going to have ongoing duty duties to those beneficiaries to make distributions for their benefit provide them with information on the trust right values disbursements receipts those are trust accountings. And then you have you just have to check in with the beneficiaries to make sure that their needs are being adequately met as part of your fiduciary duties. The next slide just has screenshots of what some of those tax forms look like. The 1041 is for reporting income tax on an irrevocable trust. We mentioned 709 above ground u that is the tax return used to report gifts. The 706 snippet picture. That’s the estate tax filing that’s done after you pass away. If you want to file for portability or you have a taxable estate in excess of the applicable exemptions, don’t forget about state tax filings that may be applicable as well depending on the state that you live in. All right, I think go ahead Alaina. A couple few last comments and we’ll take some questions. Yeah, for sure. So we just sent out. You’ll see a link that popped up in the chat box to schedule an introductory call to see how we can help you with your own unique circumstances. And while I mentioned that we won’t be able to take everyone’s questions today, if you did submit a question, someone will be reaching out to you in the next few days with an answer to that question. So I am going to stop sharing our screen right now. And since we’ve run a little bit overboard, I think we’re just going to take a couple of questions live right now. This first one I’m going to give to you, Dom. My husband just died. So sorry. Do I need to file an estate tax return? I mean, that is the question, right? That comes up. But yeah, like we discussed, everyone federally speaking has a $15 million estate tax exemption. So the first step is what are the value of the assets in the estate to do an inventory. Are we over the federal exemption at the first death or not? And then do you live in one of those states that has a state based estate tax exemption? That’s going to be determinant of whether the return is actually required to be filed. Again, state tax might not be due if everything passes to the spouse outright or otherwise qualifies for the marital or charitable deduction. But another big reason, even if you don’t have a taxable estate currently, to go ahead and file that 706 underground form is for that portability election. We don’t know what the future estate tax system is going to look like. Like I said before, $15 million is permanent for now inflation adjusted. So it is often important, especially if you’re in that wealthy category, to go ahead and make that portability filing for sure. Okay, I’m going to take our last question. This is a really good one. If I gift assets away, can I get them back ever? So typically, no. You know once you’ve gifted something to someone else you cannot get it back. However, sometimes with irrevocable trust you can retain something called a swap power that instead of you know not you instead of just saying hey trustee give me that asset back what you can do is you can swap an asset. So if there’s real estate in the trust, you could swap that real estate for cash or liquid securities. You could also use a promissory note, something like that. There are ways to sort of transfer assets. That is a lot harder to do if you make an outright gift to someone because you haven’t retained that power. But I think that is it for right now. Thank you, Dom, so much for joining me. I hope that you all enjoyed our webinar and if you have any questions, please feel free to sign up some for some time for that introductory call. We are more than glad to assist. Thank you. Thank you everyone. If you enjoyed this webinar, visit savantwealth.com/guides and download our complimentary guide books, checklists, and other useful financial resources.