Among the many, often-complex options: An irrevocable trust can benefit children and grandchildren. One type, a grantor retained annuity trust or GRAT, provides for annual payments to the donor for a fixed period of time before the assets go to the beneficiary as a tax-free gift.
A spousal lifetime access trust sets assets aside for a surviving spouse that can still be accessed if needed, with limitations. And a self-settled trust makes the person who created it the beneficiary, but the money is controlled by an independent trustee.
‘‘Locking up some money in a trust is a great asset protection tool,’’ says Shenkman.
GIVE AWAY A HOME.
A real estate investor in her 50s, another of McDonagh’s clients, gave her Manhattan apartment outright to her daughter and now rents it back. A good pension, solid income and relatively low valuation of $400,000 gave her client the confidence to make the move in order to save on future estate and gift taxes, McDonagh says.
Giving a primary residence or vacation home to a child often is done through a qualified personal residence trust, or QPERT. The trust is irrevocable but specifies that you can maintain use of the property for a certain number of years. The property is then valued at a discount because heirs don’t get immediate use.
Retaining the right to live in the house makes it a ‘‘have-your-cake-and-eat-it-too’’ scenario for those who have expensive homes but are concerned about leaving themselves with too few resources, says Jim Cody, director of estate and trust services for investment advisory firm Harris myCFO in Palo Alto, Calif.
A wild card to consider in the year-end tax scramble: State laws on estate taxes differ from federal ones. Twenty-two states have either an estate tax, an inheritance tax, or both. It’s another reason why anyone trying to take advantage of current federal laws should seek help from an expert.
Personal Finance Writer Dave Carpenter can be reached at www.twitter.com/scribblerdave .