Bet-to-Die Strategies

Peter Melcher (Virchow Krause & Company) and Matthew C. Zuengler (Hager, Dewick & Zuengler) have published their article Maximizing the Benefits of Estate Planning Bet-to-Die Strategies: CLATS and Private Annuities, 7 Marq. Elder’s Advisor 203-236 (2006).

Here is their conclusion:

Case law and Treasury regulations require the IRS to use standard actuarial tables to value most life annuity interests. This creates a golden opportunity for taxpayers with shorter-than-average life expectancies to use CLATs or private annuities to transfer tremendous amounts of wealth at a dramatically reduced transfer tax. The benefits may exceed those available from any other strategies for making large wealth transfers. It may be possible to enhance these savings by transferring fast-appreciating discountable assets, back-loading the annuity payments, and/or taking advantage of grantor trust status. Given the potential power of these strategies, the IRS can expect to see them used more frequently in the future. Provided that all formalities are observed, the transactions are carefully structured, and the taxpayers do not carry them to extremes, both strategies appear to work under the applicable case law and Treasury regulations, even in their more advanced forms. We should caution, however, that because of the tremendous potential for reducing tax revenue, the IRS could be expected to do everything it can to find ways to attack these strategies.