Estate planning is often complicated by rather hefty state and federal restrictions placed on the transferring of financial assets and real property. You must perform your due diligence and explore options to protect your assets before laws change again.

Advance planning tools like family trusts and freeze partnerships can help safeguard wealth for the efficient hand over to future generations. These insightful strategies offset tax liability and protect generational wealth for an extended period.

Freeze Partnerships

Although there are a variety of trusts available for large estate planning, preferred partnerships are often overlooked by the majority of estate attorneys. The aptly named Freeze Partnership offers a hybrid mix of benefits and can significantly impact tax liability for owners and heirs.

The first benefit of a freeze partnership is that it offers more flexibility than some stringent trust accounts provide. The Grantor Retained Annuity Trust (GRAT), for example, offers a safe haven for financial assets, but requires excessive maintenance. The grantor directs assets into an irrevocable trust at a tax discount, but is limited in the annual payments permitted.

A Freeze Partnership is an active agreement that provides more fluidity than most trusts. Grantors can schedule the involvement of active or non-controlling stakeholders. By indicating different levels of partnership, such as a preferred class and common class, estate planners can further divide assets and maximize efforts to reduce tax liability.

As with most limited partnership agreements, freeze partnerships share both the benefits and the liability among its members. Proactively monitoring and freezing assets at current prices offers the potential to significantly discount the standard tax valuation. Although there are still many unknown factors, setting a limit on the value of assets provides protection against unjustly high tax rates for future generations.

Succession Planning

Investors and estate planners have been working for decades to limit taxable income and reduce inheritance taxes. Over time, there have been trusts and loopholes that practically eliminated heir tax liability.

Formatting these estate planning resources is similar to creating an investment portfolio. The underlying investments will drive the performance of the overall holdings. Some assets may not belong in a trust or limited partnership, but could be gifted in other ways. Charitable donations and other tax deductible offerings should be planned in advance and in conjunction with overarching estate planning. This foresight will eliminate unexpected needs for cash on hand and limit the estate maintenance required.

Assets such as real estate, which are expected to naturally appreciate over time, are perfect candidates for inclusion in a freeze partnership. Stocks and other, more liquid, asset forms also have a natural place in established freeze partnerships.

The creation of complex or irrevocable estate planning resources requires careful thought and planning. These tools are certainly beneficial and open the door to a plethora of discounts and tax benefits, but the process should not be taken lightly. Unintended consequences could result from lack of understanding or poor execution.

Your legacy represents your hard work, reputation, and diligent consideration for future generations. These values belong in the hands of capable, trusted professionals. Our team at Appraisal Economics can assist you with all your estate and trust planning needs.