Does Your Estate Plan Fall Prey to 3 Big Tax Issues?

Richard (Dick”) Oshins, Esquire from Las Vegas, Nevada, identified what he believes are three of the more sinister tax blunders that affect many estate plans. Upon your annual estate and financial plan review, it would be prudent to determine if it is effected by these three issues.

• Not fixing Family Limited Partnerships (FLPs) and Limited Liability Companies (LLCs)
  • These types of entities were often formed to hold family investment or business assets for one of or more reasons, such as valuation discounts for estate and gift tax purposes. Another common purpose was to exert control, to hold family investments and, even after transferring interest, still retain that control over the entity. Lastly, these entities can provide must desired asset protection. 
  • But too often owners neglect proper maintenance and formalities with these entities, such as commingling personal funds with company funds or not having a properly signed governing instrument.
• Not swapping out on irrevocable trusts
  • Irrevocable trusts are often used to remove assets from an estate to save on taxes, for asset protection, etc. If the trust is structured as a grantor trust, the income derived from the trust is reported on the income return of the grantor and not the trust itself. A common way to create a grantor trust is to give the settlor the power to swap or substitute personal assets for trust assets of equivalent value.
• No selection of trust situs
  • Does your home state provide a good environment for your trust? If the tax system is harsher than others, you may be able to “rent” a better jurisdiction to reach your goals and avoid state income tax. When planning any new trust, discuss with your estate planning attorney the pros and cons of which state to use for the trust.

See Martin Shenkman, Does Your Estate Plan Fall Prey to 3 Big Tax Issues?, Forbes, May 27, 2019.

Special thanks to Jim Hillhouse (Professional Legal Marketing (PLM, Inc.)) and Joel C. Dobris (Professor of Law, UC Davis School of Law) for bringing this article to my attention.