Copyright © 2009 EBS Responsible Wealth

By using a Zero Estate Tax Plan or Testamentary Charitable Lead Annuity Trust, you may be able to:

• Leave your entire estate to your family and favorite charities
• Pay no estate tax
• Keep control over your assets during your lifetime
• Have a simple plan that can be changed at any time up until your death
• Have a plan that works even if the estate tax is ever permanently eliminated

Zero Estate Tax Plan

The Charitable IRA (see our separate explanation of a Charitable IRA) accomplishes a great deal for both the heirs and charity. The same approach can be applied with all the estate assets – in other words, a Zero Estate Tax Plan (ZETP). You would 1) determine in advance an appropriate inheritance for the heirs, 2) make gifts to a Wealth Replacement Trust of the funds necessary to purchase insurance in that amount, and 3) arrange at death to leave all estate assets to your favorite charities. The financial advantage of this arrangement is

that even though the IRS is frozen out of the inheritance loop, all the assets of the estate remain available to you during your lifetime to support the lifestyle you want, diminished only by the insurance premiums. You might also be inclined to make more taxable gifts during your lifetime since it only reduces what goes to charity at death.

Testamentary Charitable Lead Annuity Trust Funded with FLP Units

We can build on the ZETP concept by introducing a Testamentary Charitable Lead Annuity Trust (TCLAT). Instead of leaving the estate outright to charity, you leave all or a portion to a TCLAT. A TCLAT is similar to a GRAT (see our separate explanation of a GRAT) except that a specific amount is paid to a charity for a specific period of years and the remainder is paid to your family.

The value of that charitable stream of payments is deductible for estate tax purposes. By carefully selecting the payout amount and payout period, it may be possible to obtain a 100% estate tax charitable deduction and still have all or a substantial portion of the trust corpus go to your family at the end of the trust term.

You can significantly enhance a TCLAT by forming a FLP (see our separate explanation of a FLP) during your life, and leaving the limited partnership interests to a TCLAT at death. The annuity payments to charity will be based on the discounted value and not the underlying value of the partnership assets. This means that the required payments to charity will be lower, causing the remainder paid to your family to be higher.

Because your family will have to wait for the term of the TCLAT to end before receiving their money, you will want to use life insurance to provide a benefit to your family immediately upon your death. The premium for the insurance, in part, is coming out of what the charity might otherwise receive.

The TCLAT can spring into existence from your Will, or revocable living trust, at death. The enabling language would of course have to be drafted and be a part of the document prior to your death. The same would hold true with a Private Foundation if you wanted the TCLAT payments to flow into a foundation and still be under the family’s control. As such, the TCLAT and Private Foundation are not entities that would be restrictive to you during your lifetime.

This technique is highly desirable because you control all of your assets during your lifetime and can change your mind at any time up until your death. Your family ends up with a substantial inheritance, the charity ends up receiving a substantial payment stream, and the IRS is cut out.

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Copyright © 2009 EBS Responsible Wealth

Internal Revenue Service Circular 230 Disclosure
Pursuant to Internal Revenue Service Circular 230, we hereby inform you that any tax advice set forth herein with respect to U.S. federal tax issues was not intended or written by E. Brian Singer, Shaun Singer, EBS Group, EBS Responsible Wealth, or EBS Business & Investment Group, Inc., to be used, and cannot be used, by you or any taxpayer, for the purpose of avoiding any penalties that may be imposed on you or any other person under the Internal Revenue Code.

Our role is to help you evaluate planning techniques that can reduce your future estate tax and gift tax, and increase the wealth transferred to your family. Brian Singer is not an attorney. Although he is a CPA (Inactive-California), it is not his intention to become your CPA. He no longer engages in the practice of public accounting. This and any other analysis or discussion is not meant to address all the issues and risks as you might find in a technical legal analysis. That task, if necessary, and if you are willing to pay the fee, is the responsibility of your attorney. Brian Singer attempts to take complicated tax principles and reduce them to understandable techniques for the layperson, in plain English. Any discussion and/or written analysis are meant to give you an overview of the anticipated benefits to be derived by employing specific techniques.  Final responsibility for the tax aspects rests with the attorney of your choosing. All techniques require careful drafting by a highly competent tax attorney with specialized knowledge.  A concept that might work when competently drafted, could fail as a result of mistakes made in the documents prepared by an attorney not proficient in these areas. The appreciation rates, investment earning rates, tax rates, valuation discounts, and other factors are hypothetical assumptions.  The benefits from implementing any technique will ultimately be better or worse than described depending upon variation from the assumptions. There are no guaranteed results; either in an economic analysis or in application of the tax law. We hope you will decide to use our services. Any planning we propose is incidental to the purchase of insurance. Since insurance is used to pay estate tax, the less tax you will owe, the less insurance required. The planning is essential in the determination of your insurance needs. You are in no way obligated to purchase any insurance. If it makes sense for you, then buy it; if it doesn’t make sense for you, then don’t buy it. You are not expected to do anything that you feel is not in your best interest. We may choose to disengage at any time.