9 Advanced Estate Planning Strategies to Consider

Jun 27, 2023

Planning for how your estate will be awarded or used after your passing is a big question that everyone eventually has to answer. But with shifting tax codes, a changing worldwide economy, and your own personal preferences, it can be tough to find the perfect estate planning strategy for your needs.

Today, we’ll take a look at nine advanced estate planning strategies that offer additional estate flexibility and improved control for your estate so you and your beneficiaries can achieve specific goals.

Generation-Skipping Trust

A generation-skipping trust enables an individual to leave up to $1 million to grandchildren or even more remote descendants totally free of the normal generation-skipping transfer tax.

In this way, you can make sure the total amount of your intended inheritance is available to grandchildren. However, your spouse and children can still use the assets in the trust during their lifetimes. Note that this strategy does make use of the $1 million tax exemption, which could impact your other tax-related plans.

Grantor Retained Annuity Trust

A grantor retained annuity trust or “GRAT” is a special strategy that involves transferring investment or business properties to a trust for a certain number of years. The trust then pays the taxpayer beneficiary an annuity or fixed dollar amount. Note that the beneficiary has to be a taxpayer for this to qualify.

At the end of the trust’s term, any property that is left in the trust’s past to the family will be totally free of estate or gift taxes.

Qualified Personal Residence Trust

A qualified personal residence trust enables taxpayers to save estate taxes on their homes. With this strategy, you transfer your home to a trust during your lifetime for a certain number of years.

While you do have to pay gift taxes, this is usually much lower than what you would have to pay (in terms of estate taxes) if you held the property until your death.

Dynasty Trust

With a dynasty trust, you can preserve assets for more than two generations. It is a generation-skipping trust and, in Maryland, can even be drafted the last in perpetuity.

In any case, you can use a dynasty trust to purchase life insurance or to put other assets in a trust for safekeeping for several generations. A dynasty trust should be used when you wish to transfer assets to more than one generation in the future (hence the name).

Charitable Remainder Trust

A CRT or charitable remainder trust enables you to take advantage of an income stream from illiquid assets. Furthermore, a CRT allows you to defer or minimize income taxes.

Essentially, you transfer any appreciated assets to a CRT. Then you get a charitable income tax deduction. Over time, the CRT will sell those assets and distribute any cash to you or another beneficiary.

Family LLC

With knowledgeable estate planning lawyers, you can create a family LLC or limited liability company. With this tool and strategy, you’ll be able to shepherd wealth transfers across several generations and keep estate taxes to a minimum.

That’s because an LLC provides excellent asset protection and protects LLC owners from direct liability. This makes it a great tool for business estate purposes, as well.

Irrevocable Life Insurance Trust

An ILIT or irrevocable life insurance trust is an advanced estate planning strategy that lets you purchase life insurance on your life, then gift the ILIT cash needed to pay for any premiums. In doing this, you eliminate the need for the life insurance strategy itself to pay taxes.

After you pass away, your policy’s death benefit will be paid to the ILIT. Because of this, it won’t be subject to estate tax. Any beneficiaries of the trust will then be able to dip into the money from the life insurance policy without having to pay extra. You can name one or several beneficiaries of the ILIT to take the life insurance payout.

Spousal Lifetime Access Trust

A SLAT or spousal lifetime access trust is a financial instrument that lets you use high federal estate tax exemptions. In a nutshell, you transfer assets to a SLAT. This uses up some of your federal estate tax exemption.

Meanwhile, you make your spouse the beneficiary of the SLAT. They get access to the assets in the trust during their lifetime. After your spouse passes away, any remaining assets go to trusts for your children. Any assets in the SLAT (in addition to appreciation for those assets) aren’t subject to estate taxes.

Buy/Sell Agreement

If your family runs a business, you should consider using a buy/sell agreement. This restricts transfers of interest in the business, and it applies during your lifetime and at your death.

With a buy/sell agreement, you’ll be able to establish a mechanism for either the business itself or other business owners to buy out your shares or the shares of any other deceased owner. This way, you can rest assured that your ownership in the business will pass to someone you trust or intend to take over in your stead.

Wrap Up

Ultimately, you and your family need to decide which of these estate planning strategies you'll use. Be sure to speak to knowledgeable estate planning lawyers so you fully understand these strategies' requirements, limitations, and use cases.