The older the survivor's age at the trust's inception, the greater the charitable deduction and the smaller the estate tax. CRTs are a less effective estate reduction technique for the younger beneficiary. The younger the beneficiary, the greater the present value of the income stream, and the smaller the charitable bequest. In order for the CRT to be valid, the charitable beneficiary must have an expectation of receiving 10% of the trust's value as determined at the creation of the trust. Note, since any resulting estate taxes cannot be paid from the CRT assets, it is important that the estate has enough liquidity to pay the taxes.
A charitable lead trust (CLT) is another planning strategy to facilitate the transfer of property from one partner to another in a tax-efficient manner. Basically, this works just the opposite of the CRT, in that the income beneficiary is initially the charity and the remainder beneficiary is the other partner. Even though the gift is delayed, the value of the gift to the partner is determined immediately. If the trust assets grow significantly between the date of the gift and the end of the term, there is an opportunity to pass this excess without additional gift taxes.
In The End, The Simplest Solution May Be Best
Finally,
the simplest solution is sometimes the least obvious. Trust-owned life
insurance can solve a lot of problems by creating liquidity to pay
estate and income taxes or providing the surviving partner with a
source of support and perhaps lessen family conflict.
As relationships and laws evolve, the key to the estate plan for the nontraditional couple is listening to their goals, understanding family dynamics, anticipating contests by hostile family members, and understanding how these can be meshed with gift and estate tax-reduction techniques.
Tere D'Amato is the vice president of advanced planning at Commonwealth Financial Network in Waltham, Mass. She can be reached at [email protected].