Wilson and his team recommended the couple establish two types of trusts. First, the husband opened an irrevocable life insurance trust (ILIT), a type of living trust that's designed to hold a life insurance policy. The insurance policy's beneficiary is the trust itself. So if the husband dies, the death benefit will go into the trust and not be counted as part of the inherited estate. The wife is the beneficiary of the trust, so to speak, not of the insurance policy, and the assets in the trust are not taxable. This allows her to inherit the death benefit without taxation. (ILITs can take ownership of an existing policy or a newly established one. Since they're irrevocable, ILITs cannot be changed or rescinded later.)
Second, the husband established a qualified domestic trust (QDOT), a special kind of trust that allows surviving noncitizen spouses to take the full marital deduction on estate taxes. The deduction is only allowed for assets included within the trust. At least one trustee of the QDOT must be a U.S. citizen or authorized domestic corporation.
The final component of the plan was basic asset management.
All in all, Wilson said, "this solution utilized the expertise of TIAA specialists as well as an outside attorney and ultimately helped the clients address a potential estate tax liability that the couple was not prepared for when we first met."
The moral of the story is that good, careful planning pays off. "A strong financial plan created with the help of a financial advisor can help clients determine and prioritize what is important to them," stressed Wilson. It's important, he noted, for clients to articulate their wishes and set a time line for achieving their goals. This way, they are sure to "mitigate the risk of not accomplishing their legacy wishes," he said.