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Opportunities in Estate and Gift Planning

Scott Ditman, CPA/PFS and Marc Svagna, CPA 03.05.2015 | Client Alert

Notable Rates for 2014/2015

  2015 2014
Unified Estate, Gift, and Generation Skipping Transfer (GST) Tax Exemption $5.34 million $5.43 million
Maximum Estate and Gift Tax Rate 40% 40%
Annual Gift Tax Exclusion $14,000 per person $14,000 per person

Strategies to Consider Now

Increased Exemptions Have Increased Your Opportunity for Tax Savings   

Now that the unified Estate, Gift, and GST tax exemption has risen to $5,430,000  for 2015, married couples are able to transfer up to $10,860,000 free of all of these taxes. This transfer can be accomplished during your lifetime or at death. Even couples who took full advantage of the 2012 increase (to $5,120,000 single/$10,240,000 married) can still transfer a sizeable $620,000 and reap the tax savings. 

Gifts or Sales to Generation Skipping Grantor Trusts

With this technique, you are able to freeze the value of selected assets for estate tax purposes. High net worth families can take advantage of the Generation Skipping Transfer tax (GST) exemption by establishing long-term, multigenerational trusts.  Multiple factors — increased gift tax exemptions, valuation discounts, and low interest rates — combine to make this technique a tremendous wealth transfer opportunity.


  • Create a GST trust that will hold a non-controlling membership interest in an LLC that owns interests in real estate.
  • Take valuation discounts on gifts or sales to the GST trust — potentially 30% to as much as 50% for minority interest and lack of marketability — that dramatically trim the value of the LLC.
  • Reap the benefit of the increased Gift Tax Exemption ($5,430,000 for 2015).
  • Leverage the increase in the exemption by financing the sale of assets to the GST trust with today’s very low Applicable Federal Rates (AFRs).

Any future appreciation on the transferred interest and any income in excess of the interest on the note will accrue to the benefit of the trust and will not be subject to estate tax. As an added bonus, since a Grantor Trust was used, there will be no capital gain at the time of sale. In addition, the grantor pays the income taxes on the income earned by the trust, even though the income accrues for the benefit of the children or grandchildren.  Properly structured, a GST trust will allow the trust assets to benefit multiple generations without incurring additional transfer taxes. 

Grantor Retained Annuity Trusts

Currently, individuals with appreciating assets can realize substantial benefits from a Grantor Retained Annuity Trust (GRAT).  Typically, the benefits are achieved by keeping the term short, often just two years, and by retaining enough of the annuity interest to keep the gift tax value of the remainder interest at or near zero — a technique known as zeroing out .  At the end of the GRAT term, any remaining assets, which represent the trust’s appreciation in excess of the historically low Applicable Federal Rate (AFR) during the GRAT term, pass to the children or grandchildren free of transfer tax. If the grantor dies during the GRAT term, some or all of the GRAT assets are includible in the grantor’s estate for tax purposes.

Intra-Family Loans

Parents can make low-interest loans to children or to trusts for the benefit of children or other family members. These individuals may pay interest annually and the loan principal at the end of the term. Applicable Federal Rates (AFRs) continue to be lower than commercial lending rates.  These intra-family loans can be used to provide investment capital for children as well as to help fund home purchases.

Charitable Lead Annuity Trusts (CLATs)

Through a CLAT, you leverage your charitable contributions to transfer wealth to family members.  CLATs are split-interest trusts with two beneficiaries.

The first beneficiary, the charitable lead beneficiary, receives a fixed annual annuity payment throughout the term of the trust. At the end of the trust term, the remaining assets are distributed to one or more noncharitable remainder beneficiaries—typically children or other family members.  There are two types of CLATs: grantor trusts and separate tax-paying trusts. Grantor CLATs are drafted so that all income and deductions pass through the trust to the donor, who is considered the owner of the trust assets for income tax purposes. With a separate tax paying trust, all income and deductions must be reported on a separate trust income tax return.

If you have any questions, contact your Berdon advisor, Scott Ditman, CPA/PFS, at 212.331.7464 │, or Marco Svagna, CPA, at 212.331.7644 │


Link to Estate Planning Guide

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