estate tax

Crafting Your Legacy: Building a Comprehensive Estate Plan

Tom Bidinger — Thu, 04 Dec 2025 21:52:52 +0000

Crafting Your Legacy: Building a Comprehensive Estate Plan Tom Bidinger Thu, 12/04/2025 - 15:52

In this webinar, which originally aired December 4, 2025, Wealth Enhancement’s Michael Goff provides a blueprint for crafting a comprehensive estate plan, including:

Essential documents to put in place
How to have meaningful conversations with family
Tax-efficient wealth-transfer strategies

To learn more about the topics covered in the webinar, schedule a meeting with one of our advisors today!

This information is not intended as a recommendation. The opinions are subject to change at any time and no forecasts can be guaranteed. Investment decisions should always be made based on an investor's specific circumstances.

2025-10080

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How to Reduce Estate Taxes with an Irrevocable Life Insurance Trust (ILIT)

wegmigrate — Wed, 22 Oct 2025 05:00:00 +0000

How to Reduce Estate Taxes with an Irrevocable Life Insurance Trust (ILIT) wegmigrate Wed, 10/22/2025 - 00:00

When planning your estate, preserving your wealth for future generations often comes down to one key strategy: minimizing estate tax liability. One powerful and often underutilized tool in this effort is the Irrevocable Life Insurance Trust (ILIT). When implemented properly, an ILIT can help reduce estate taxes, protect life insurance proceeds, and ensure a smooth transfer of wealth.

But what is an ILIT, how does it work, and is it right for you? Below, we explore everything high-net-worth individuals need to know about irrevocable life insurance trusts as part of a comprehensive estate plan.

What Is an Irrevocable Life Insurance Trust?

An Irrevocable Life Insurance Trust (ILIT) is a special type of trust designed specifically to own and manage a life insurance policy outside of your taxable estate. Once the trust is created and funded, the policy becomes the property of the ILIT, not you.

This means:

The death benefit is excluded from your estate.
Your beneficiaries can access the proceeds tax-free (subject to certain conditions).
The trust controls how and when funds are distributed.

Because the trust is irrevocable, you cannot make changes once it’s established. But in exchange for that permanence, you gain meaningful estate tax advantages.

How Does an ILIT Help Avoid Estate Taxes?

Ordinarily, the death benefit of a life insurance policy is included in your gross estate for estate tax purposes, see 26 CFR § 20.2042-1. For 2025, the federal estate tax basic exclusion amount is $13.99 million per person, per the IRS. Anything above this threshold may be taxed up to 40% at the federal level, plus applicable state estate taxes.

Here’s where an ILIT helps:

Removes the policy from your estate – Because the trust owns the policy, the death benefit is not considered part of your taxable estate.
Shelters wealth from federal and state estate taxes – This is especially valuable in states like Massachusetts and Oregon that have low estate tax exemptions.
Preserves more wealth for heirs – Rather than losing up to 40% to estate taxes, your beneficiaries may receive the full value of the life insurance payout.

Real-world example: Let’s say you live in Minnesota with a $20 million estate. Without proper planning, about $6.4 million could be subject to estate taxes. However, by placing a $5 million life insurance policy inside an ILIT, that benefit is excluded from your estate, potentially saving millions in taxes.

Additional Benefits of an ILIT

An ILIT offers more than tax savings. It can also help you (see our related post on Avoiding Estate Taxes on a Life Insurance Policy):

Control the timing of distributions (e.g., stagger payments for young beneficiaries).
Preserve assets from creditors or potential misuse.
Fund estate tax liabilities without selling other assets.
Provide liquidity for estate settlement expenses.

Because the trust terms dictate how the life insurance proceeds are used, you can tailor them to fit your family’s needs and values.

Potential Drawbacks to Consider

While ILITs can be highly effective, they come with some considerations:

They are irrevocable – Once created, you lose control over the policy.
Gift tax rules may apply – Funding the trust with premiums or an existing policy may trigger gift tax concerns.
Ongoing administration – The trustee must manage Crummey notices and premium payments to maintain tax advantages.

Working with a financial advisor is essential to properly structure and maintain the ILIT.

Is an Irrevocable Life Insurance Trust Right for You?

An ILIT is often ideal for:

High-net-worth individuals with large life insurance policies
Families looking to preserve generational wealth
Business owners who need liquidity to fund succession plans
Individuals in states with low estate tax exemptions

If your estate may exceed the federal or state exemption threshold, or if you're concerned about the impact of estate taxes on your heirs, an ILIT is worth exploring.

Key Takeaways

ILITs remove life insurance from your taxable estate, helping reduce or avoid estate taxes.
They give you control over how and when funds are distributed to your beneficiaries.
They can help protect wealth from taxation, creditors, and poor financial decisions.
They require careful setup and ongoing administration to maintain benefits. For gifting mechanics that may support premium funding, see our post Estate Tax Planning Using the Annual Gift Tax Exclusion.

Next Steps

To find out if an irrevocable life insurance trust is right for your estate plan, talk with a financial advisor. They can help you:

Evaluate your estate size and tax exposure
Determine the best type of policy for the trust
Draft the legal documents and manage compliance

When thoughtfully crafted, an ILIT can be one of the most effective tools for reducing estate taxes and preserving your legacy.

Frequently Asked Questions About Irrevocable Life Insurance Trusts (ILITs)

What exactly is an ILIT?

An Irrevocable Life Insurance Trust (ILIT) is a trust created to own a life insurance policy outside of your taxable estate. The trustee, not you, owns and controls the policy according to the terms laid out in the trust document. Because ownership is transferred, the policy’s death benefit is generally not counted in your estate for estate tax purposes.

How can an ILIT help reduce estate taxes?

If you personally own a life insurance policy, the death benefit is typically included in your taxable estate. By moving ownership to an ILIT, the proceeds are generally excluded from your estate, which can help reduce potential federal and state estate taxes and keep more of the policy’s value available for your beneficiaries.

Who typically considers using an ILIT?

Families who expect their estate to exceed federal or state estate tax exemptions, individuals with large permanent or term policies, business owners seeking liquidity for succession needs, and couples using survivorship (second‑to‑die) insurance often evaluate ILITs.

Should I buy a new policy inside the ILIT or transfer an existing policy?

Either approach can work. Purchasing a new policy directly in the ILIT avoids certain look‑back rules. Transferring an existing policy can be appropriate too, but it may have additional tax considerations (see the “3‑year rule” below). Your can help compare options.

What is the “3‑year rule” I’ve heard about?

If you transfer an existing policy to an ILIT and pass away within three years of the transfer, the IRS can treat the death benefit as part of your estate. See 26 U.S.C. § 2035 for the statutory three-year rule. This rule does not apply if the ILIT purchases a new policy from the outset. Your planning team can help you weigh timing considerations.

How are premium payments made once the ILIT is set up?

Typically, you make gifts to the ILIT and the trustee uses those funds to pay premiums. Gifts may qualify for the annual gift tax exclusion ($19,000 per donee in 2025). See IRS guidance on Gifts & Inheritances here. With proper administration, these gifts can qualify for the annual gift tax exclusion.

What are “Crummey notices,” and why do they matter?

To qualify gifts for the annual exclusion, many ILITs give beneficiaries a temporary right to withdraw the contribution (a “Crummey power”), upheld in Crummey v. Commissioner, 397 F.2d 82 (9th Cir. 1968). The trustee notifies beneficiaries of this right, often called a Crummey notice, and keeps records. Proper notices are an important part of maintaining the ILIT’s tax benefits.

Who should serve as trustee?

You’ll name an independent trustee (a trusted individual or corporate trustee). To preserve tax benefits and avoid control issues, the insured generally should not act as trustee. Some families also name a trust protector who has limited powers to adjust certain administrative terms if laws or circumstances change.

Can I change beneficiaries or the trust terms later?

An ILIT is irrevocable, so you typically cannot rewrite core terms after it’s created. That said, your attorney can draft provisions that allow limited flexibility, such as permitting a trust protector to modify administrative details or using state law techniques like decanting where available.

What happens to the policy’s cash value?

If the ILIT owns a permanent policy with cash value, the trustee controls it. The trustee may access cash value or policy loans for the benefit of the trust/beneficiaries, consistent with the trust terms. The insured generally cannot access cash value personally once the policy is owned by the ILIT.

How do gift and generation‑skipping transfer (GST) taxes come into play?

Gifts to fund premiums may be covered by the annual gift tax exclusion and/or your lifetime gift and estate tax exemption (basic exclusion amount). For GST planning, see 26 CFR § 26.2632-1 on allocating GST exemption. If grandchildren (or lower‑generation beneficiaries) are included, your attorney can help allocate GST exemption to the ILIT to address potential GST tax.

What if I stop funding the trust or the policy lapses?

If premium funding stops, the trustee may consider options such as using cash value (if any), reducing the death benefit, or exploring a paid‑up policy. These choices can affect coverage and long‑term value, so advance planning for reliable premium funding is important.

Will an ILIT help with state estate or inheritance taxes?

Often, yes. Many states have separate estate or inheritance taxes with exemption amounts lower than the federal level. Keeping the life insurance death benefit outside of your estate can help manage potential state‑level taxes as well.

Can an ILIT own a survivorship (second‑to‑die) policy for married couples?

Yes. Survivorship policies, paying a death benefit after the second spouse’s death, are commonly owned by ILITs because they can be a cost‑effective way to provide liquidity for taxes or other obligations due at the second death.

How does an ILIT provide liquidity for my estate?

Your trust can be directed to lend money to your estate or purchase illiquid assets from your estate after death, providing cash to pay taxes or expenses without forcing a sale of family property or a business at an inopportune time.

Are there drawbacks to consider?

Key trade‑offs include loss of control (it’s irrevocable), ongoing administration (trustee work and Crummey notices), legal and trustee fees, and the need for consistent premium funding. Many families find the estate‑tax and control benefits outweigh these considerations, but it’s important to evaluate them upfront.

What happens if tax laws change?

Trusts can be drafted with built‑in flexibility (discretionary distribution standards, trust protector provisions, decanting authority where permitted). Even so, periodic reviews with your advisor and attorney are wise to keep your plan aligned with current law and your goals. For context on the scheduled post-2025 changes and “no-clawback,” see the IRS Estate and Gift Tax FAQs.

What other strategies pair well with an ILIT?

Depending on your situation, your team may also discuss spousal lifetime access trusts (SLATs), grantor retained annuity trusts (GRATs), charitable trusts, buy‑sell agreements, or other techniques. An ILIT often serves as the life‑insurance component within a broader, integrated estate plan.

Sources and Further Reading

IRS: Tax inflation adjustments for tax year 2025 (estate and gift)
IRS: Estate and Gift Tax FAQs (no-clawback clarification)
Cornell LII: 26 CFR § 20.2042-1, Proceeds of life insurance
Cornell LII: 26 U.S.C. § 2035, Three-year rule
Justia: Crummey v. Commissioner, 397 F.2d 82 (9th Cir. 1968)
Cornell LII: 26 CFR § 26.2632-1, Allocation of GST exemption

What You Need to Know About the “One Big, Beautiful Bill”

Alicia Castro — Mon, 07 Jul 2025 23:41:12 +0000

What You Need to Know About the “One Big, Beautiful Bill” Alicia Castro Mon, 07/07/2025 - 18:41

Ever since the passage of the Tax Cuts and Jobs Act (TCJA) in 2017 with most of its provisions expiring on December 31, 2025, observers have speculated about what would happen next.

That question was finally answered on July 4, 2025, when the “One Big, Beautiful Bill (OBBB)” was signed into law. The legislation makes the 2017 tax cuts permanent, along with several other important provisions.

At 870 pages, the OBBB also contains a long list of additional changes that will affect taxpayers for years to come. Our specialists have broken down the list into some key highlights for you.

Here’s what you need to know about the new tax law.

Tax cuts made permanent

One of the top headlines of the OBBB is the fact that it permanentized the tax cuts that were enacted with the TCJA. Federal income tax brackets will remain unchanged at 10%, 12%, 22%, 24%, 32%, 35%, 37%, indexed for inflation. This is a key point for taxpayers across income levels, particularly high-income earners. Without this change, tax brackets were previously scheduled to revert to 2017 levels, adjusted for inflation. This would have resulted in higher taxes for many people.

The OBBB did not adjust the corporate tax rate, which was reduced from 35% to 21% when the TCJA was enacted.

In addition, the TCJA created a new temporary provision called the Qualified Business Income Deduction (QBI). This 20% deduction was designed to help small business owners who were unable to benefit from the reduced corporate tax rate.

Under the OBBB, the 20% QBI deduction for qualified business income (§199A) will remain unchanged and become permanentized, along with an extended phaseout range. This will allow more people to qualify for this deduction.

Standard deduction

The OBBB slightly enhances and permanentizes the increased standard deduction amounts enacted under the TCJA. For 2025, the standard deduction is now $15,750 for individuals and $31,500 for married couples who file jointly.

The law also creates an additional “Senior Bonus Deduction” of $6,000 for taxpayers ages 65+, effective in 2025. This provision is temporary and subject to phaseout, but while in effect, it has the potential to create a significant tax planning opportunity for seniors, whether they are utilizing the standard deduction or itemizing their deductions.

Itemized deductions

Under the OBBB, the standard deduction will receive a temporary enhancement from TCJA levels in 2025.

For those itemizing their deductions, state and local taxes (or SALT) were capped at $10,000 under the TCJA. This cap in turn created the Pass Through Entity Tax (PTET) loophole, whereby state and local taxes are paid at the entity levels and passed down to shareholders in the form of a deduction that is not subject to the SALT cap.

The OBBB will also increase the SALT cap to $40,000 (subject to phase out) starting in 2025, while keeping the PTET loophole in place.

The SALT cap will likely increase the number of taxpayers taking the itemized deduction, especially in states with higher tax rates, such as New York, New Jersey, and California.

In addition, the TCJA temporarily capped mortgage acquisition debt at $750,000 and temporarily eliminated miscellaneous itemized deductions. These changes were made permanent by the OBBB.

New “above the line” deductions

The new tax law is designed to create benefits for taxpayers who receive tips and overtime pay. It allows deductions for qualified tips and qualified overtime compensation. These measures are temporary and subject to phaseouts and caps.

These changes could provide significant tax savings for service and hourly employees. However, it’s important to note that Social Security and Medicare still apply, so earnings are not entirely tax free.

There is also a new tax deduction of up to $10,000 for car loan interest on new cars assembled in the United States. This deduction is subject to a cap.

For taxpayers who make charitable cash donations, there will be a deduction available for non-itemizing taxpayers up to $1,000 (single) or $2,000 (married filing jointly) starting in 2026.

Estate and gift tax exemptions

The TCJA doubled the lifetime gift and estate tax exemption, meaning that far fewer families would be subject to federal estate taxes. The expiration of the TCJA would have meant that many more people would face federal estate tax liabilities, but the new law has made the higher exemption amounts permanent.

The OBBB increases the lifetime gift and estate tax exemption to $15 million per person ($30 million per married couple) starting in 2026. This will be indexed for inflation annually.

This allows families a more long-term approach to wealth transfers without the uncertainty of potential tax increases from expiring tax provisions. People will have greater flexibility in deciding whether to gift during their lifetime or wait until death for the “step-up” in cost basis on assets.

Clean energy credits

People who are interested in investing in energy efficiency updates for their homes or buying “clean” vehicles need to be aware that green energy tax credits previously scheduled to expire in 2032 will now expire within a year.

Clean vehicle credits will now expire on September 30, 2025, while energy efficient home improvement credits and residential clean energy credits will expire on December 31, 2025.

Depreciation

The OBBB restores 100% bonus depreciation for property placed in service from January 19, 2025. This is now permanent.

Under Section 179, starting in 2026, the maximum deduction amount will increase to $2.5 million (with a phase-out threshold at $4 million).

Our tax specialists recommend these strategies:

Immediate expensing of qualified property
Maximize deductions to significantly lower taxable income and tax liability
Consider combining bonus depreciation and Section 179 for optimized tax benefits

Real estate focus: Consider a cost segregation study to help make the most of bonus depreciation by reclassifying assets into eligible categories.

Opportunity Zones

The new tax law includes changes to Opportunity Zone (OZ) investments. These investment opportunities were created as part of the TCJA as a way for investors to invest in underserved communities in exchange for tax benefits.

The new law accelerates the expiration of the current OZs to December 31, 2026 (2 years early). It creates a new round of permanent, rolling 10-year designated zones starting in 2027.

This strategy offers a 10% step-up in basis for investments held for at least 5 years. This increases to 30% for qualified rural OZs.

For investors who are already invested in Qualified Opportunity Zones, any eligible capital gains invested before January 1, 2027, would be subject to the existing law and, as such, subject to gain inclusion on December 31, 2026.

For investors who are considering QOZ investments in the future, these changes and enhancements are a positive sign.

Other notable provisions

Trump accounts: Tax-preferred savings account for children will provide an initial $1,000 federal subsidy per child born 2024-2028.

Health savings accounts: The House proposed major changes in its initial bill, but the Senate did not include these in the final version.

Personal exemptions: These have been suspended permanently.

Alternative minimum tax: Increased exemption and phaseout thresholds have been made permanent.

529 plans: These educational savings accounts have been expanded to include home schooling and post-secondary credentials (including Certified Public Accountant or Certified Financial Planner).

Child tax credit: Slight enhancement ($2,200); this is now permanent.

1099 MISC/NEC reporting requirements: Increased threshold to $2,000.

Want to review your financial plan or learn how to make the most of these new tax laws? Please reach out to our team to learn more about how these changes might affect your personal financial plan.

2025-8406

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Five Proven Strategies to Tackle Estate Taxes

Alex Bryant — Wed, 25 Jun 2025 15:10:54 +0000

Five Proven Strategies to Tackle Estate Taxes

Although only 0.07% of U.S. taxpayers will pay any estate tax, those subject to paying the tax face challenges around how to best fund the looming obligations for liquidity.

Alex Bryant Wed, 06/25/2025 - 10:10

Gregory Lopez

Saving Through an Energy-Efficient Home

wegmigrate — Thu, 24 Apr 2025 05:00:00 +0000

Saving Through an Energy-Efficient Home wegmigrate Thu, 04/24/2025 - 00:00

Financial management isn’t just about preparing for retirement or reducing taxes. It’s also about looking for opportunities to save money over time. One way to accomplish this is by saving energy at home. An energy-efficient home is one that uses less energy on a day-to-day basis—and it can be accomplished with some simple lifestyle changes and eco-friendly home improvements. In some cases, these investments even qualify you for a tax credit, which can help defray your upfront costs. Here, we look at several strategies you can adopt to save through an energy-efficient home.

Creating an energy-efficient home is just one way you can prepare for retirement. If you’re ready to speak to a Wealth Enhancement advisor about retirement planning, schedule a meeting today.

The benefits of an energy-efficient home

The most obvious benefit of an energy-efficient home is that it may help to lower your energy costs. This matters more now than ever, with energy costs across the United States projected to be 10% higher in 2025 compared to just last year.[i] The U.S. Department of Energy estimates that the average energy-efficient home saves up to 25% on utilities compared to similar homes not designed with efficiency in mind.[ii] However, the benefits don’t stop there.

By lowering energy usage, you can help the planet by reducing your home’s greenhouse gas emissions. Your indoor environment might improve as well, with greater air quality and more consistent inside temperatures. Upgrades may even increase your home value, with homes rated as energy-efficient selling for 2.7% above comparable unrated homes.[iii]

How to make your home more energy efficient

If you would like to unlock the advantages of an energy-efficient home, here are a few ways to get started:

Get a home energy audit. Many local utility companies offer energy audits to help identify areas for improvement, such as air leaks around windows or doors, poor insulation, or inefficient appliances. Starting here can help you pinpoint where to focus your energy improvement efforts.
Make some lifestyle changes. While some energy-efficient upgrades cost money, others simply require you to change some of your habits. For instance, turning off your lights, unplugging unused devices, and closing your blinds during the summer to reduce heat transfer are all easy ways to start saving by reducing energy consumption. Other easy fixes include changing your furnace filter regularly, lowering the temperatures on your thermostat and water heater, using low-flow faucets to conserve water, and even planting trees strategically to gain some shade.
Use LED lighting. The case for energy-efficient lighting is strong, with LED bulbs using up to 90% less energy and lasting up to 25 times longer than traditional incandescent lighting.[iv]
Reinsulate. A home’s insulation can shrink over time, resulting in heat loss during the winter and heat retention during warmer months. Properly insulating your attic, walls, and floors can cut your energy bills and make your home more comfortable in the process.
Replace your windows. Older homes tend to leak two to four times more air than newer homes,[v] so you can improve energy efficiency by sealing leaks with weatherstripping and caulking. If your windows are older, you may also want to consider replacing them. Newer windows rely on more advanced technology that controls heat transfer, which could help reduce your energy usage by up to 30%.[vi]
Upgrade your appliances. Just like older windows are less efficient, so are older appliances. By switching to Energy Star-certified appliances, you can reduce energy consumption and improve efficiency. Newer refrigerators, for instance, could reduce energy consumption by up to 9%,[vii] and newer dishwashers typically use less water and less energy.
Review your heating and cooling systems. Upgrading your heating, ventilation, and air conditioning (HVAC) systems can often deliver greater energy efficiency, but there are other changes you can make that also help. For instance, ceiling fans consume 99% less energy than central air conditioning systems.[viii] Even switching to a smart thermostat can help by automating and regulating your home’s temperature control.
Upgrade your water heater. Older water heaters typically hold a reservoir of hot water and expend energy to keep that water hot. Tankless water heaters, however, heat water on demand, which can reduce energy consumption by up to 34%.[ix]
Go solar. Depending on where you live, you may be able to use solar energy to electrify your home, reducing reliance on the traditional power grid. Installing solar panels is a good way to reduce energy costs and could even result in financial credits if you can sell excess energy back to the grid.

Qualifying for tax credits

Enhancing your home’s energy efficiency can deliver ongoing savings over time. You may even be able to defray the initial costs of certain home improvements with the energy efficient home improvement credit.[x] Qualified energy-efficient home improvements made after January 1, 2023 may make you eligible for a tax credit of up to $3,200, claimable for improvements to your primary residence made through 2032. The credit equals 30% of qualified expenses such as home energy audits, residential energy property expenses, and energy efficiency improvements.

The maximum annual credit is $1,200 for energy-efficient property costs and certain energy-efficient home improvements and $2,000 for qualified heat pumps, water heaters, and biomass stoves and boilers. Additionally, the credit has no lifetime dollar limit, which means you can claim the annual amounts for every year you make eligible improvements. That said, beginning in 2025, the credit is only available if the energy-efficient items were produced by a qualified manufacturer, so it’s important to check in advance if the items you select qualify.

Bottom line

Making your home more energy efficient can deliver a range of benefits, from reduced utility bills and positive environmental outcomes to potential increases in the value of your home. With available tax credits and potential rebates or incentives from local utility companies, energy-efficient home improvements can be a sound investment that pays off in greater comfort and financial savings over time.

_[i]_{https://oilprice.com/Energy/Energy-General/Energy-Costs-Surge-Across-the-United-States.html}
_[ii]_{https://gbdmagazine.com/energy-efficient-homes/}
_[iii]_{https://myhome.freddiemac.com/blog/homeownership/20200825-selling-green-home}
_[iv]_{https://www.energy.gov/energysaver/lighting-choices-save-you-money}
_[v]_{https://www.sciencedirect.com/science/article/abs/pii/S2352710224027177}
_[vi]_{https://www.energy.gov/energysaver/why-energy-efficiency-matters}
_[vii]_{https://www.energystar.gov/products/refrigerators}
_[viii]_{https://gbdmagazine.com/energy-efficient-homes/}
_[ix]_{https://www.energy.gov/energysaver/tankless-or-demand-type-water-heaters}
_[x]_{https://www.irs.gov/credits-deductions/energy-efficient-home-improvement-credit#:~:text=If%20you%20make%20qualified%20energy,previous%20versions%20of%20Form%205695}_.

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Katy Chase

Benefits of Working With a Financial Planner

wegmigrate — Sun, 24 Nov 2024 06:00:00 +0000

Benefits of Working With a Financial Planner wegmigrate Sun, 11/24/2024 - 00:00

A financial planner helps their clients with financial planning and reach long-term goals. Individuals and families will benefit from the experience and personalized approach of financial planning services. The support of a professional planner addresses investment management, tax planning, and more. Here are some benefits of working with a financial planner:

Personalized Financial Strategies

While planners do offer financial advice, they also take the time to customize a plan to a client's specific needs, lifestyle, and goals. At Wealth Enhancement, our advisors provide individualized strategies to improve financial wealth, from budgeting and saving to investing and tax planning.

Financial planning services are ongoing, as life changes or new events can impact wealth. These events include job transitions, marriage, starting a family, or retirement. A planner will adapt their strategy to meet ongoing goals. This flexibility benefits the client by keeping them on track and their finances organized and prepared.

Investment Management Experience

Professional planners offer specialized knowledge in investment management to help manage stocks, bonds, or assets. Their services focus on a diversified portfolio that matches their client's goals and risk tolerance. When working with a financial planner, clients can benefit from strategies to optimize returns and manage risk for long-term growth. Here are some key factors a planner will focus on:

Analyzing market trends and investment opportunities.
Establishing an investment goal, whether it's retirement savings or education funds.
Reviewing the portfolio as the market changes, making sure investments are aligned with the client's objectives.
Providing options on how different assets, such as real estate or stocks, work together for balanced growth.

Our professionals continually monitor market shifts and economic developments. They'll also adjust the portfolio as needed to enhance results. Building upon traditional investment plans and strategies, we include plans, designed to avoid high-risk trades.

Comprehensive Tax Planning

Effective tax planning involves deductions, identifying credits, and structuring investments. This helps minimize taxes and plan for future tax implications. An advisor may offer options on tax benefits with accounts, such as retirement or charitable contributions. This way, clients can keep more of their income and reinvest it toward their goals. By including a tax plan in your financial strategy, a planner can increase overall savings.

Estate and Trust Planning

Estate and trust services offer a smooth process for complex planning processes. This includes trusts, protecting assets, and transfers. They'll also manage the assets for specific purposes, such as education, according to the client's wishes.

Retirement Income Planning

Financial freedom involves various methods or plans. Financial planners help prepare for the long term through a customized plan based on what's already saved. This process verifies income is allocated in the right places for potential growth. Our team will help define benefit plans, cash flow analysis, traditional IRAs, and more. Tax preparation, trust services, and consultation offer a long-term strategy to organizing finances.

With adjustments to tax brackets to account for inflation, we can help with standard deductions and other key numbers. Marginal tax brackets range from low to high rates, which affects individuals, families, and businesses. Our financial planners strive to stay up to date to help make the most of your income and available deductions which are designed to optimize your retirement savings.

Get Started With Financial Planning Services Today

Working with a financial planner gives clients access to knowledge in tax strategies, budgeting, and complex investments. They help you prepare for various financial decisions and grow wealth. Wealth Enhancement offers planning services designed to support clients during every step, providing information to make informed decisions. Reach out to one of our financial planners today to learn more about our strategies and how we will help you manage your wealth.

Tax services offered through Wealth Enhancement Tax & Consulting Services, LLC, a wholly owned subsidiary of Wealth Enhancement Group®.

Trust services offered through Wealth Enhancement Trust Services, LLC, a trust company chartered under South Dakota law.

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Discover How to Maximize Estate Tax Savings With a Grantor Retained Annuity Trust (GRAT)

wegmigrate — Tue, 25 Jul 2023 05:00:00 +0000

Discover How to Maximize Estate Tax Savings With a Grantor Retained Annuity Trust (GRAT) wegmigrate Tue, 07/25/2023 - 00:00

You work hard to accumulate wealth, and you want to pass as much of it as possible along to your heirs and beneficiaries. But due to the size of your estate, you're on the hook to pay a hefty sum in estate and gift taxes.

It's a story we see every day. Fortunately, we can use smart estate planning strategies to reduce estate taxes. A particularly effective strategy involves the creation of a grantor-retained annuity trust (GRAT), which is just one of the many types of trusts that provide tax benefits.

A GRAT is an estate planning tool that allows you to move assets out of your estate, receive income from those assets, and potentially avoid gift taxes on the leftover amount you transfer to your beneficiaries.

What Is a Grantor Retained Annuity Trust?

First, let's cover the constituent parts of a GRAT. An annuity is a financial instrument wherein you contribute funds or assets (such as stock or options) into an account, and then that account distributes money in equal installments regularly. An annuity trust is simply a trust designed to distribute funds like an annuity. In other words, you contribute assets to a trust that issues regular disbursements.

With a grantor-retained annuity trust, the person setting up the trust is both the grantor and the grantee. Unlike other commonly used types of trusts, GRATs pay the proceeds back to the person who funded them.

How Does a GRAT Work?

GRATs are typically used by individuals who have large estates when they want to transfer appreciating assets to beneficiaries without being subject to significant taxes.

Let's begin with a basic example of a GRAT, ignoring the tax part for now.

First, the grantor sets up an irrevocable trust. They set how long the trust will last before it expires (the term), specify the percentage of the trust to be paid out each year (the annuity), then fund the trust with assets. Every year, the grantor will receive the annuity.

When the term expires, the remaining funds will pass to the beneficiaries.

To illustrate, let's say you have $1,000,000 worth of stock that you want to pass to your beneficiaries but still benefit from over the next decade. In this case, you can set up a GRAT, fund the trust with your stock, set the term as 10 years, and specify that you want to receive 6% of the original trust amount as your annual annuity. Each year, you'll receive $60,000 from the trust. After the 10 years are up, any remaining value passes to your named beneficiary.

You may be wondering, "So what?" The "So what" comes from the unique tax treatment of GRATs—which reveals their true power.

How Are GRATs Taxed?

GRATs are taxed in two ways.

First, any income you earn from the appreciation of the assets in the trust is subject to regular income tax. Second, any remaining funds that transfer to your named beneficiary after the GRAT expires are subject to gift taxes.

However, there's one big asterisk to this second type of taxation: what you could owe in gift tax is calculated at the time you create the GRAT—not when the trust assets pass to your beneficiaries. And GRATs provide a way to potentially circumvent this gift tax entirely.

When you load assets into the trust, the IRS predicts how much those assets will grow. The IRS assumes the trust-owned assets will generate a return equal to 120% of the Applicable Federal Annual Midterm Rate for the month that the assets are transferred to the trust. This rate is called the “§7520 rate", from Section 7520 of the Internal Revenue Code, and is also known colloquially as the "hurdle rate".

Any appreciation of the trust assets more than the hurdle rate then passes to the beneficiary’s gift tax-free.

Thus, to entirely avoid the gift tax, savvy GRAT creators set the term and annuity rate such that the entirety of the IRS's predicted return will be paid out to the grantor over its lifetime. Doing so effectively "zeroes out" the trust remainder, meaning you'll owe nothing in gift taxes on the amount you transfer at expiry.

Because of this, GRATs are often populated with high-yield assets with the hope that those assets will appreciate to a value significantly greater than the hurdle rate.

When you set up your annuity payment schedule, your goal is to get the IRS's projected return paid back to you through the annuity, leaving the extra appreciation to transfer to your beneficiaries without incurring any gift tax.

Next, let's look at a fully-fledged GRAT example.

GRAT Example with Explanations

In this example, the grantor established a GRAT with a 10-year term. They loaded $1,000,000 worth of assets into the trust and assumed that those assets would grow 8% per year.

Figure 1. Detailed GRAT Example

Term	10 years
Starting Principal	$1,000,000
§7520 Rate for July 2023 (Hurdle Rate)	4.60%
Annual GRAT Annuity Payment	$127,000
Total of Payments Received Over Term	$1,270,000
Anticipated Growth Rate of Principal	8%
Remainder Passing to Beneficiaries	$319,127
Amount Owed in Gift Taxes	$0
Estate Tax Savings at 40%	$127,651

In this example, we used the July 2023 hurdle rate of 4.6%. This allowed us to calculate what the annuity payments needed to be to "zero out" the trust. In this case, the grantor needs to receive 10 annual payments of $127,000 each from the GRAT, totaling nearly $1.3 million over the trust's term.

We assumed the grantor loaded the GRAT with assets that would grow 8% per year—higher than the IRS's hurdle rate. After the grantor receives the annuity payments and the GRAT expires, the beneficiary of the trust will receive a total of $319,127. Because this remainder is above the IRS's predicted return, there would be no gift tax on this total.

Assuming the current 40% federal estate tax, this strategy saves $127,651 in estate taxes compared to if that value had been transferred without a GRAT.

Grantor Retained Annuity Trust Pros and Cons

Pros of a GRAT

First and foremost, the annuity from a GRAT can provide a steady stream of income for a grantor who may need it in retirement. However, the main reason people use GRATs is not for the annuity itself but for the potential to transfer substantial amounts of money to a beneficiary while paying little estate tax.

Gifting is an important part of estate planning, but the federal government limits how much everyone can donate each year. In 2023, the federal exemption is $17,000 per person—you can only give $17,000 to each individual before the gifted amount starts counting against your lifetime gift tax exclusion ($12.92 million in 2023).

GRATs allow you to bypass this amount considerably. In the above example, the grantor gifted over $300,000 to their beneficiary without triggering gift tax.

Cons of a GRAT

GRATs are not without their risks.

The first risk relates to the term. When a GRAT is created, you set the term of the trust. If you pass away before the term expires, all the assets in the trust revert to you and are included in your taxable estate. This can result in a hefty tax bill for whoever inherits those assets.

Longer terms allow more time for your assets to appreciate, which is important because yielding a higher capital gain is the main driver behind establishing a GRAT. However, the longer you set the term, the greater the chance you don't live to see the end of it.

The second con is if the assets in the GRAT depreciate instead of appreciating. In this case, your annual annuity payments could "drain" the entire principle of the trust, and there will be nothing left at the end of the term. This won't result in an adverse outcome—the trust will simply stop paying when it runs out of money—but your beneficiaries won't be left with anything after the trust expires.

Additionally, since you're typically only avoiding the gift tax on asset appreciation, it only makes sense to populate your GRAT with high-yielding assets. If you're not expecting to see a significant appreciation of the assets, establishing a GRAT may not be worth the effort. When you factor in the money required to draft and maintain a GRAT, the juice just might not be worth the squeeze.

Finally, assets gifted through a GRAT don't experience a "step-up in basis." Instead, your beneficiaries retain the cost basis you initially held in the assets. This means that when your beneficiaries eventually sell the assets, they received through the GRAT, they will need to pay capital gains taxes on the full gain associated with the property—not just the gain they realized from the time they received the asset.

That said, the capital gains tax is a maximum of 23.8%, assuming the maximum income threshold and the Net Investment Income Tax (NIIT). This doesn't seem too bad when compared to the estate tax your beneficiaries would've owed if they received the assets outright (up to 40% in 2023).

Adding a GRAT to Your Estate Plan

GRATs can be a valuable part of your estate plan. When used correctly and under the right market conditions, they can help you leave more of your assets with your beneficiaries instead of the government. To learn more about how a GRAT could fit into your estate plan, reach out to your financial advisor today.

This information is not intended to provide tax or legal advice. Discuss your specific situation with a qualified tax or legal professional.

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Topic

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grantor-retained annuity trust (GRAT)

net investment income tax (NIIT)

Duration

6 minutes

Eric A. Flick

How to Keep Your Vacation Home in the Family with a QPRT Trust

wegmigrate — Fri, 10 Jun 2022 05:00:00 +0000

How to Keep Your Vacation Home in the Family with a QPRT Trust wegmigrate Fri, 06/10/2022 - 00:00

Whether you own a cabin on a lake, cottage on a beach, or lodge up in the mountains, your vacation home is likely a favorite spot where you made a lot of memories over the years. As you age and find it harder to spend time there, it’s only natural that you’d want to keep this second property in the family and give it to your children.

There’s a lot to consider if you’re thinking about leaving your family vacation home to your children. After all, these types of homes can actually bring a lot of stress—not relaxation. That’s why it’s important to take inventory of all the costs associated with keeping and maintaining the home and discuss them with your children before you decide to bequeath it to them.

To help get the conversation started, here are three broad types of costs you may want to cover:

1. Maintenance & Upkeep

This is an easy one for people to grasp. Like any other house, your vacation property needs to be maintained. You likely have to pay for electricity to power the appliances, gas to heat the house, and utilities to the city for water, sewage, and trash removal.

If it’s an older property, there will likely be elevated costs to maintain the home. You (or your children) may even decide to spruce up the place with some updates or renovations. You likely even have homeowner’s insurance to pay for, and it’s possible you even have association fees.

As you discuss leaving the family vacation home to your children, make sure they’re aware of all the costs that go into simply maintaining the home. Provide a rundown of all your monthly, quarterly, and yearly bills, and remind your children that these costs are on top of what they’re already paying to maintain their own homes.

2. Intangible Costs

If you have multiple children who are planning on sharing the vacation home, there will inevitably be disagreements, which come at an emotional cost. It could be angst and squabbles over “booking the calendar” to use the home at certain times. It could be deciding who will manage the property and the associated financial aspects. Maybe one of your children lives halfway across the country and doesn’t feel like they should have to pay an equal share to use the property far less than their sibling(s).

Additionally, there’s a “time cost” that must be considered. If you don’t pay a maid service or property manager, certain chores or responsibilities will fall to your children as they take ownership of the house. They’ll need to take care of the lawn during spring, summer and fall. In the winter, they may need to clear snow off the driveway. If you have a wood-burning stove or fireplace, they’ll need to chop firewood.

These are all things that take time away from enjoying the vacation home but must be done. Make sure your children are aware of the work that must be put in to make the home a fun getaway for everyone.

3. Taxes

There are also taxes that must be considered. Not only are there property taxes that must be paid, but when your children inherit the house, there may also be estate and/or gift taxes.

However, if your children decide they’re okay with taking on the maintenance/upkeep costs and other intangible costs, there may be a way for you to easily transfer your property to them while also relieving them of a potentially hefty tax burden: establishing a Qualified Personal Residence Trust (QPRT).

What is a QPRT?

A QPRT is an irrevocable trust that allows its creator to remove a personal home from their estate. The purpose is to reduce the amount of gift tax that is incurred when transferring assets to a beneficiary.

You choose a term of ownership of the house. For example, let’s say you’re 65 and decide to set up a ten-year trust. After ten years, the trust dissolves, and the house is distributed to your children (who, in this example, are the beneficiaries you designated at the end of the term).

Once you place the house in the QPRT, you cannot take it back, as it is considered a gift that you have retained an interest in for the ten-year period. To prove that it’s a gift for tax purposes, you need to pay a market value rent to your children (the beneficiaries) and have gifted it to them, who then take ownership at the end of the ten-year term. You can continue to live in the house at the end of the term by paying rent but only if the new owners (your children) allow it. This can become an issue if your adult children predecease you and your son/daughter-in-law inherit the house.

Next Steps

If you find yourself thinking more about your legacy, it might be time to review and update your estate plan, including how to keep your vacation home in the family. Good communication with your children is essential to developing a good plan, so reach out to an advisor today to start a conversation on solutions for your family.

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Topic

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qualified personal residence trust (QPRT)

Duration

3 minutes

Tom Breiter

What to Do with Your Parents' House After They Pass

wegmigrate — Tue, 31 May 2022 05:00:00 +0000

What to Do with Your Parents' House After They Pass wegmigrate Tue, 05/31/2022 - 00:00

Settling a deceased parent’s estate can be an overwhelming task. It’s difficult enough losing a parent; figuring out what to do with all their stuff can be an added burden. What’s more, you might have siblings, and they might have families, so determining who gets what can leave your head spinning.

It’s likely that your parents already named beneficiaries. You and your sibling(s) will probably receive pre-determined share of various bank accounts, retirement accounts, trusts, and other assets. In this scenario, you’ll each get a check, and that’s that. However, your parents also probably have one asset that cannot be distributed evenly with such ease: their house.

Homes are an often-overlooked asset when it comes to settling an estate, but your parent’s home could actually be the biggest. And while you and your siblings might become equal owners of the deed, you might not all agree on what happens to the house. So, if you inherited your parents’ home after they passed, here are some options to consider.

Sell the House Outright

Whether you’re the sole owner or you and your siblings all inherit the home, this is probably your most likely course of action. Maintaining another property can be a huge burden—and that’s assuming you even want it.

What’s more likely to happen is that you and your siblings will sell the home. While inherited property doesn’t qualify for the home sale tax exclusion, you can benefit from a step-up in cost basis. A step-up in cost basis means that certain inherited assets become valued at the fair market value (FMV) at the time of the decedent’s death.

For example, if your parents bought their home in 1964 for $30,000, but it’s now worth $280,000, you’re not taxed on the $250,000 capital gain if you sell the home for $280,000. The step-up in cost basis means that at the time of your last surviving parent’s death, when the house transfers to you and your siblings via a transfer on death deed, the house immediately becomes valued at $280,000. If you then sell for $280,000, you don’t have a capital gain in the eyes of the IRS, so you won’t be taxed on it.

However, if you sell the house for $310,000, you could be on the hook for your share of that $30,000 capital gain. Tax issues can get complicated quickly, so it’s a good idea to reach out to your tax advisor or estate planning attorney.

Buy Out Your Sibling(s)

If you want to keep the house but your sibling doesn’t, you could simply buy them out. Whatever your reason, you could do so by restructuring a new mortgage against the property in your name.

Mortgages can be arranged where your sibling receives cash, and you receive full ownership of the property, along with any debt. The amount of the mortgage would need to be large enough to pay their share of the value after taking care of any existing debt, transfer taxes due to the changing of title, and closing costs. Once complete, you have the home and a mortgage, while your sibling has cash.

If the roles are reversed and your sibling keeps the house and buys you out, due to the previously mentioned step-up in cost basis, you may be able to avoid taxes on the money you receive from the buyout.

Use the House for Passive Income

Another option could be to keep the house as a source of passive income. If neither you nor your siblings plan on moving into the house but you’re not ready to sell it just yet, you could rent out the property to create an extra stream of income and allow it to appreciate even further.

This scenario could even still be used in conjunction with a buyout. Maybe you want to keep the house for a college-aged child. You could rent it out until your child is old enough or ready to branch out on their own. Maybe you want to keep the house as a second/vacation home and rent it out when you’re not using it via something like Airbnb or Vrbo.

Deciding what to do with a deceased parent’s home can be difficult. Every situation is different, and there could be any number of reasons why you decide to do what you do. Just know that you don’t have to make that decision alone, as the advisors at Wealth Enhancement have decades of estate planning experience and are ready to assist you with all your big decisions.

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Duration

3 minutes

Brian Kuhn

Life Insurance as Part of Your Estate Plan

wegmigrate — Wed, 16 Mar 2022 05:00:00 +0000

Life Insurance as Part of Your Estate Plan wegmigrate Wed, 03/16/2022 - 00:00

Everything you own or control is part of your estate. From tangible assets (like your car, wedding ring and antique Radio Flyer) to intangible assets (like your bank accounts, annuities and investments), your estate encompasses all your life’s treasures. Crafting a thoughtful plan right now helps you protect your estate while you’re alive, and it can also provide many benefits for you and your family during and after your retirement.

Upon your death, you can plan to do three things with your estate:

Donate it to a philanthropic organization
Give it to the government through estate taxes
Designate certain people to get certain assets

If you choose the third option, it’s likely that you’re doing so because you want to leave a legacy for your loved ones. You want them to experience the benefits of your estate to their fullest extent. Unfortunately, the costs of settling an estate can add up quickly, and the taxes assessed on some estates can end up being more of a burden than a bonus for your heirs.

Paying Taxes on Your Estate

In 2022, the federal estate tax exemption is set at $12.06 million, which means if your total estate is valued at less than $12.06 million, it won’t be subject to federal estate tax. For most people, this is not an issue. However, states can levy their own estate tax or even something called an inheritance tax, which, instead of taxing your estate, actually taxes your heirs/beneficiaries directly. Currently, 17 states impose either an estate tax or inheritance tax, and Maryland actually has both.

State estate tax exemptions are much lower than the federal exemption (Connecticut has the highest exemption at $7.1 million—nearly $5 million less than the federal exemption), so depending on where you live, there’s a greater chance that you’re on the hook for estate taxes. And if you live in a state with an inheritance tax, there is no exemption. Your heirs simply owe taxes based on a certain percentage of the value of the property bequeathed to them.

Additionally, there are certain restrictions that come with paying estate taxes. These taxes must be paid before the estate is distributed, and they must be paid within nine months of death. If payments aren’t made in a timely fashion, the amount due is subject to interest.

Many families don’t have that kind of cash readily available, so they turn to banks to take out loans (which could end up costing them more, since the money they were loaned will have to be repaid with interest), or they sell various assets (which, depending on the situation, could force them to sell assets for substantially less than market value). What many people don’t know is that if you plan ahead, life insurance can help you offset some of these costs.

How Life Insurance Can Help

While it’s well known that life insurance provides a financial replacement for income lost upon one’s death, these policies can also be structured such that your heirs benefit from your policy’s proceeds tax-free. Most life insurance proceeds are received income tax-free, but to receive these benefits estate tax-free, you need to implement a particular plan. Here’s what you can do:

Irrevocable Life Insurance Trust

Establishing an Irrevocable Life Insurance Trust (ILIT) allows you to reduce your overall taxable estate and provide immediate liquidity for estate settlement costs so you can maximize the wealth that’s passed on to your heirs. Using this strategy, the ILIT—not the individual—owns the life insurance policy. Upon one’s death, the trustee receives the benefits and passes them on to the estate’s executor to help pay for various estate taxes and other settlement costs, effectively bypassing federal estate taxation.

Donating to Charity

You can also use a life insurance policy to leave funds to a particular charity for a tax advantage. It’s important to make sure that the charity is a 501(c)(3) nonprofit organization and that it can accept donations in the form of life insurance. To receive a tax deduction, you can donate your policy by naming the charity as both owner and beneficiary. As you make donations to the charity each year so that it can pay your policy’s premium, you can add the cash value of the policy and money you pay for premiums to your tax deductions.

Next Steps

Establishing a careful estate plan can positively affect your heirs now and in the future, and it’s an essential part of any financial plan. Your favorite philanthropic causes could also benefit. If you decide to include life insurance as part of your estate plan, you’ll want to make sure that it’s the right kind of life insurance, such as whole or universal life insurance.

Contact your financial advisor today to coordinate an appointment with one of our insurance specialists to discern which kind of life insurance as an estate planning tool is right for you and your financial situation. If your goal is to leave your loved ones and/or your favorite causes with the maximum amount of support possible, our team is ready to help.

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Duration

4 minutes

Jennie Boland

estate tax

Crafting Your Legacy: Building a Comprehensive Estate Plan

How to Reduce Estate Taxes with an Irrevocable Life Insurance Trust (ILIT)

What Is an Irrevocable Life Insurance Trust?

How Does an ILIT Help Avoid Estate Taxes?

Additional Benefits of an ILIT

Potential Drawbacks to Consider

Is an Irrevocable Life Insurance Trust Right for You?

Key Takeaways

Next Steps

Frequently Asked Questions About Irrevocable Life Insurance Trusts (ILITs)

What exactly is an ILIT?

How can an ILIT help reduce estate taxes?

Who typically considers using an ILIT?

Should I buy a new policy inside the ILIT or transfer an existing policy?

What is the “3‑year rule” I’ve heard about?

How are premium payments made once the ILIT is set up?

What are “Crummey notices,” and why do they matter?

Who should serve as trustee?

Can I change beneficiaries or the trust terms later?

What happens to the policy’s cash value?

How do gift and generation‑skipping transfer (GST) taxes come into play?

What if I stop funding the trust or the policy lapses?

Will an ILIT help with state estate or inheritance taxes?

Can an ILIT own a survivorship (second‑to‑die) policy for married couples?

How does an ILIT provide liquidity for my estate?

Are there drawbacks to consider?

What happens if tax laws change?

What other strategies pair well with an ILIT?

Sources and Further Reading

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Estate and gift tax exemptions

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Depreciation

Opportunity Zones

Other notable provisions

Five Proven Strategies to Tackle Estate Taxes

Saving Through an Energy-Efficient Home

The benefits of an energy-efficient home

How to make your home more energy efficient

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Bottom line

Benefits of Working With a Financial Planner

Personalized Financial Strategies

Investment Management Experience

Comprehensive Tax Planning

Estate and Trust Planning

Retirement Income Planning

Get Started With Financial Planning Services Today

Discover How to Maximize Estate Tax Savings With a Grantor Retained Annuity Trust (GRAT)

What Is a Grantor Retained Annuity Trust?

How Does a GRAT Work?

How Are GRATs Taxed?

GRAT Example with Explanations

Grantor Retained Annuity Trust Pros and Cons

Pros of a GRAT

Cons of a GRAT

Adding a GRAT to Your Estate Plan

How to Keep Your Vacation Home in the Family with a QPRT Trust

1. Maintenance & Upkeep

2. Intangible Costs

3. Taxes

What is a QPRT?

Next Steps

What to Do with Your Parents' House After They Pass

Sell the House Outright

Buy Out Your Sibling(s)

Use the House for Passive Income

Life Insurance as Part of Your Estate Plan

Paying Taxes on Your Estate

How Life Insurance Can Help

Irrevocable Life Insurance Trust

Donating to Charity

Next Steps