Asset Protection Trusts

For those with potential tax issues, there are many types of estate planning tools to mitigate potential tax exposure.

The Federal Estate Tax Exclusion is currently pegged at about $12 million, meaning that anyone with an estate larger than that amount will be subject to the Federal Estate Tax. However, unless Congress acts, the Exclusion will revert to $5 million by 2026. To avoid possible exposure to Estate Taxes, The Taormina Firm works with families to create certain asset protection trusts.

QTIP Revocable Living Trusts

QTIP Trusts help reduce and offset potential Estate Tax exposure. "QTIP" stands for "Qualified Terminable Interest Property" and is a special carveout in the rule for qualifying for the unlimited marital deduction under the Estate Tax Code. QTIP Trusts can be created jointly or individually. So what does this mean?

When the first Settlor dies and is survived by his/her spouse, the terms of the QTIP Trust split the joint trust into separate trusts. One of the Trusts is known as the Marital Trust and the other is the Family Trust. The Marital Trust is for the benefit of the surviving spouse and the Family Trust is for the benefit of the Settlor's Beneficiaries (including the surviving spouse).

The purpose of the QTIP Trust is to extend the payment of Estate Taxes until the death of the surviving spouse. The QTIP Trust also allows spouses to double their individual Federal Estate Tax Exclusion Amount (instead of $12 million, Estate Taxes will not be owed on joint estates of married couples unless there is over $24 million in assets).

Please Note: Due to potential changes in the tax code, The Taormina Firm places all clients with over $2.5 Million in total assets into a QTIP Trust. Please see our Pricing page for more details as to cost.

Irrevocable Life Insurance Trusts (ILITs)

Contrary to popular belief, life insurance proceeds are included in a decedent's Gross Estate for federal Estate Tax purposes. This could potentially be problematic for individuals with large life insurance policies. A great solution to this problem is placing life insurance policies into an Irrevocable Life Insurance Trust ("ILIT").

An ILIT is a Trust created to own an insurance policy on the life of the Settlor. The Trust may also be named as beneficiary of the life insurance policy. The main goal is to remove the value of the life insurance proceeds from the Settlor's Gross Estate for Estate Tax purposes. So long as the life insurance policy is transferred into an ILIT more than 3 years prior to the death of the Settlor, the life insurance policy will be removed from the Settlor's Gross Estate, thus reducing the overall taxable value of the Settlor's Gross Estate at death.

When the Settlor dies, the life insurance proceeds are typically held in further trust for the benefit of the Settlor's Beneficiaries, free of any transfer tax. The proceeds may also be used to purchase assets from the estate to enable the estate to pay Estate Taxes without having to liquidate certain assets.

In ILIT planning, the Settlor cannot be Trustee of the ILIT. Instead, he or she must relinquish all power and control over the life insurance policy to a third party in order for the proceeds to be excluded from their estate. Thus, choosing a proper Trustee is important in the ILIT context.

If you are interested in learning more about certain tax planning trust solutions, please talk with St. Louis trust lawyer Vince Taormina.

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Vince Taormina is an experienced St. Louis trust attorney who works with ordinary families to educate them on the benefits of having a trust.

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