Three Estate Planning Strategies

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OCEAN CITY – If there is a silver lining to the current slump in equities, it may be this: Taken in conjunction with low interest rates, these temporarily reduced asset values are helping make a number of smart estate planning opportunities possible.

“This is a good time to pursue gifting strategies to the next generation,” said Tadd Lindsay, Director of the Midwest Division of Merrill Lynch’s Wealth Structuring Group. “Making use now of certain estate planning techniques — such as grantor-retained annuity trusts and qualified personal residence trusts — can help maximize the benefit to your estate and your heirs.”

According to Lindsay, three current trends make this a particularly appropriate moment to take advantage of estate planning strategies.

Irrevocable life insurance trusts, or ILITs. These powerful estate-planning tools can help protect the proceeds of a life insurance policy from estate taxes. The insured grantor funds the policy by gifting either a lump sum or a regular payment to the trust. The trustee must notify the ILIT’s beneficiary of the gift to qualify as an annual exclusion gift. If the beneficiary does not withdraw the funds, the trustee will make the premium payment for the life insurance policy.

Grantor-retained annuity trusts, or GRATs. Because many assets are currently seeing lower valuations, this may be the time to transfer them through a GRAT structure, an irrevocable trust created for a finite term, to which the grantor gifts appreciating assets, such as property or a concentrated stock position.

Qualified personal residence trusts, or QPRTs. Declining home prices have made the prospect of transferring a primary residence or vacation home to this specialized trust doubly advantageous. You can remove a property from your taxable estate when you irrevocably transfer it to the trust.

These are just three of the most widely used gifting strategies that can take advantage of current market conditions. Your financial advisor can discuss these and other options with you and your tax professional and legal counsel, coordinating the joint effort in order to help you manage your overall financial picture

(A Merrill Lynch Senior Financial Advisor. She can be reached at 410-213-8520.)

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