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Duluth Georgia Estate Planning Legal Blog

Trusts can minimize estate tax liabilities

Georgia residents who are thinking about the future may find that their estate plans are affected by the increased transfer tax exemption brought into existence by the 2017 Tax Cuts and Jobs Act. While the transfer tax exemption was doubled to $11.18 million per person or $22.36 million per married couple under the law, it has a built-in sunset clause in 2025. If additional legislation is not passed, the exemption will return to its 2017 levels -- roughly half the new exemption amounts. This means that people with substantial estates valued at over $5.6 million may wish to take action to preserve the larger exemption before its expiration in 2025.

Many people may be hesitant to adopt estate planning strategies that put a significant amount of their fortune out of their reach. However, the exemption from estate taxes includes both lifetime transfers and those made after death. By using certain trust strategies, people can maintain some level of control over their wealth while preserving the larger exemption. For example, a spousal lifetime access trust (SLAT) is an irrevocable trust that allows an estate owner to pass assets to a spouse, removing them from his or her estate. An independent trustee must be appointed, but the spouse can still access the assets of the trust when needed.

How to leave money to non-family members

As you decide where you want your money to go when you pass on, you may be considering beneficiaries outside the family. Perhaps you have few relatives left or that you are close to. Or maybe you have special people in your life that you want to thank for their service (such as a caregiver) or that you want to care for (such as someone you mentor).

You have different options for how to leave these people money, each with its own advantages and disadvantages. Reviewing them all with your attorney can help you ensure that you make the right choice to avoid unnecessary estate taxes and will contests.

Trust distributions could be subject to flexibility

Georgia parents who are setting up trusts to manage the distribution of inheritances to their children often have valid reasons for controlling the flow of money. Whether a will creates a testamentary trust or a benefactor establishes a lifetime irrevocable trust, the terms governing distributions fall into the categories of discretionary, mandatory or event-driven. Mandatory distributions or those triggered by events like marriage or graduation can be hardwired into the terms of a trust. Such terms exert specific control, but benefactors have the option of building in flexibility with discretionary terms.

A trust could grant the trustee the power to make discretionary decisions. Mandatory distributions can still be part of the trust, but the trustee could have the ability to react to changing or unexpected circumstances. A trustee could apply ascertainable standards related to a beneficiary's health, education, maintenance or support to approve a discretionary distribution.

Identifying the right person to take over the family business

Georgia residents may have planned to pass down their assets and legacy directly to their children. However, this may not always be a wsie idea. This is because a person's offspring may not be qualified to run a business or handle money on their own. They also may not be interested in running a family business. Therefore, it can be beneficial to create a succession plan that allows future generations to benefit from an asset without controlling it.

A succession plan could allow a key employee or other experienced individual to take control of the company when the current owner is ready to retire. Taking this step enables the business to thrive and keep the legacy of its founder alive for years or decades to come. Furthermore, by transferring control of the company to someone who is qualified to run it, it can help to smooth over any problematic family dynamics.

Tax changes force Georgia trust owners to make tough decisions

The Tax Cuts and Job Act of 2017 changed the tax code in a number of important ways. However, one overlooked aspect is how the law impacts estate planning strategies, especially with regard to irrevocable life insurance trusts, or ILITs.

The ILIT has long been a staple of estate planning strategies. It's often used by those who face federal estate taxes. An individual can gift money to the ILIT to pay life insurance premiums. Upon the individual's passing, the life insurance death benefit is paid to the trust, which then uses the funds to pay taxes and other estate costs.

Trust strategies for supporting people with special needs

Families in Georgia that include a person with special needs must consider that individual's long-term welfare and maintenance. The direct assignment of an inheritance to a person born with disabilities or who was disabled by an accident or disease could likely interfere with government benefits. Generally, someone cannot possess over $2,000 to qualify for Supplemental Security Income. Special needs trusts supply solutions to this problem.

A first-party trust names the special needs person as the beneficiary and holds assets for him or her. The trust allows that person to reduce his or her personal assets below $2,000 and qualify for government assistance. Funds from the trust can be distributed for the person's benefit over the course of his or her lifetime. Upon the beneficiary's death, the trust forfeits any leftover assets to reimburse the government for care.

Interest rates can affect trust decisions

When people in Georgia make plans for their assets, trusts are an important tool that can help them plan for the future while providing ongoing income and benefits. The ongoing increase in interest rates, however, could cause people to make some changes in how they determine what kind of trusts to use. For the past 10 years, low interest rates have been a constant, and now that rates are rising, planning advice about trusts can also make a change.

Some trusts can provide strong value when interest rates are high; these have been used less frequently due to low rates. Meanwhile, people who have been undecided about whether to use a grantor retained annuity trust, known as a GRAT, or charitable lead annuity trust, referred to as a CLAT, may want to make a decision quickly. For a GRAT, a trust is created for a specific period of time; the grantor is paid a set value for each year the trust is in place, and the remainder passes to the grantor's beneficiaries. Because taxation to the beneficiaries is related to the amount of interest assessed over the trust's lifetime, a lower rate reduces the amount of tax a beneficiary may have to pay.

Protecting a business with estate planning

Estate planning can be important for everyone who wants to protect their family's future, but it can be especially so for Georgia business owners. In fact, an estate plan can help them to protect the future of their family as well as their business and those who rely on them. By dealing clearly with future plans for the business, a business owner can help to set up a framework that benefits employees, customers and other stakeholders.

There are a number of documents that can be part of an overall estate plan; the most common and well-known of these is the will. A will lays out how a person's assets should be distributed after he or she passes away and names an executor to handle the actual disbursement. However, additional documents can help to further streamline the process. A revocable trust creates a legal entity that can receive all of a person's assets. This trust allows a trustee to take over management if the creator becomes incapacitated and can allow property to pass after death without going through the probate court process. This can make revocable trusts a much more efficient way to transfer property.

Explaining the reasons for an estate plan to family members

A Georgia resident who is making an estate plan might want to think about whether their intentions will be understood and followed by family members. While an estate owner could have a will, financial powers of attorney and trusts, there could still be conflict between loved ones.

The first step in clarifying an estate plan for beneficiaries is to make a list of all assets and their value along with who they will go to. People should include assets that have sentimental value since these can sometimes cause the most conflict. Next, the estate owner should compose a letter of intent and instruction that explains the rationale for the estate plan.

Appointing the right executor to protect your estate

An effective estate plan can go a long way to protecting your assets and ensuring they go to the appropriate beneficiaries in accordance with your wishes. However, like many other plans, even the best estate plan is often only as good as the person implementing it.

While the probate court oversees the process generally, your will's executor will be the one taking action on the ground. Whether the distribution goes smoothly or winds up in a snarl of litigation can have a great deal to do with the way the executor goes about performing his or her administrative duties.

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