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Explore 3 estate planning strategies to guide your decisions

Apr 28, 2022

This article was co-written by Dean Stange, CFP®, Wipfli Financial Advisors, LLC

Whenever tax laws change or election season rolls around, people get a little panicky. Uncertainty leads to rash decisions instead of optimal, tax-advantaged outcomes.

Your future shouldn’t be reactionary. It should be planned. Strategize how to preserve your assets to avoid making hasty and irreversible decisions.

Consider these three common estate planning strategies to get started:

1. Gift parts of your business

To leverage this strategy, first, figure out what your business is worth. If the fallout from the COVID-19 pandemic is negatively impacting your business, it could be an ideal time to transfer parts of ownership.

If you gift ownership interests before value fully recovers, you’ll use less of your lifetime estate tax exemption than if you gifted the business at a higher value. This strategy keeps future company growth out of your estate, and moves wealth out of the estate at current tax rates. 

You may also benefit from discounts for lack of control and lack of marketability. Non-controlling (minority) interests in privately held companies are typically considered to be worth less than the pro-rate share of the total value of the firm. Therefore, discounts for lack of control and marketability could be applied, and shares gifted at discounted values. These discounts enable you to transfer more stock to your beneficiaries, since it’s often sensible to transfer a minority interest in a company than to transfer undiscounted cash.

2. Set up a trust

Three types of trust are popular for transferring estate wealth:

  • Grantor retained annuity trust (GRAT): A grantor funds the GRAT with assets that appreciate over time (e.g., stocks or business interest) in exchange for a guaranteed annuity for a fixed number of years (minimum of two years). When the term expires, the remaining GRAT balance is transferred tax free to designated beneficiaries. Note: the grantor must outlive the GRAT term for the balance to transfer tax free.
  • Charitable lead annuity trust (CLAT): With a CLAT, a designated charity, foundation or donor advised fund receives annual annuity payments instead of a grantor. Once the CLAT term expires, the remaining assets are transferred tax free to designated beneficiaries (i.e., the grantor’s descendants).
  • Spousal lifetime access trust (SLAT): In a SLAT, one spouse gifts assets into a trust (using their estate tax exemption to do so) to the benefit of the other spouse. This removes the assets from their combined estates while allowing them to keep control over the assets. Any asset appreciation takes place in the trust.

3. Leverage the annual exclusion gift

From an estate planning standpoint, using the annual exclusion gift is considered very easy, low-hanging fruit that you should absolutely take advantage of every year.

Currently, an individual is allowed to give $16,000 per year, per recipient, tax free. That means you and your spouse can give $32,000 to each child, grandchild, etc. While this may not seem significant at first, making this gift every year chips away at your estate and transfers wealth out on a consistent basis.

How we can help

From valuing and gifting your business, to strategizing around trusts, to tax planning, we provide an integrated team that helps ensure you’re developing a solid, comprehensive plan. Find out how on our private client services web page.

Wipfli Financial Advisors, LLC (“Wipfli Financial”) is an investment advisor registered with the U.S. Securities and Exchange Commission (SEC); however, such registration does not imply a certain level of skill or training and no inference to the contrary should be made. Wipfli Financial is a proud affiliate of Wipfli LLP, a national accounting and consulting firm. Information pertaining to Wipfli Financial’s management, operations, services, fees and conflicts of interest is set forth in Wipfli Financial’s current Form ADV Part 2A brochure and Form CRS, copies of which are available from Wipfli Financial upon request at no cost or at www.adviserinfo.sec.gov. Wipfli Financial does not provide tax, accounting or legal services.

Wipfli LLP and Wipfli Financial, although affiliated companies, are separate entities.

Author(s)

Francis P. Egan, CFA, ASA
Senior Manager, Valuation Litigation and Transaction Services
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