Government
The government wants to share in their assets, both estate as well as those they give away while living.

1. The government charges gift (living) and estate taxes, both federal and state.

2. Governments can modify gift and estate tax laws so the current rates may not be the same today as in the year the client will pay them; this is particularly true for estate taxes, which hopefully don’t become due for quite a few years. Not knowing what the rates will be when they are paid should influence the planning.

3. On the federal side, the rates are the best they have been in many years. Currently, clients do not pay on the first $11+million of combined estate and gift amounts. What clients don’t pay on is called the “exemption”. Husband and wife can combine theirs so the total exemption for a couple can be as high as $22+million. They currently are reduced in 2026. Under the current political climate, our politicians are likely to reduce them sooner. This is a reason for more aggressive planning today.

4. About 20 states have estate taxes. Only Connecticut currently has a gift tax. Like the federal side, the state legislators may change them before your clients pay them.

5. Another benefit (in addition to the exemption) to consider in estate planning is the “step-up-in basis”. The built-in capital gains of the deceased currently doesn’t get taxed. The cost basis of a capital asset goes to market (typically on the date of death or the date of filing). This can be a big benefit and the reason for mentioning this is the current politicians are talking about eliminating the step-up-in-basis and to tax the appreciation of a capital asset of the deceased.

6. There are many strategies to reduce the government’s share. These are while living or as part of your estate plan. The beneficiaries are your family or charities. Some strategies benefit both.

7. Aggressive planning can dramatically reduce or eliminate the government’s share. This will increase the amount going to family or charity. An individual must determine how aggressive they want to be to achieve this. It takes time, and there may be significant legal fees; but adopted strategies can be very effective to reduce or eliminate the government’s take.

The government is probably the least desirable of the three beneficiaries of your clients’ wealth. The other two are family and charity. Determining the amount, and timing, your clients want to go to each is a challenge, but can provide huge benefits, and of course is a personal choice.

Family
For many, passing assets on to family members is their number one priority. There are multiple things to consider:

1. How much do they want to go to their heirs?

2. What is the timing of the gift? Do they pass all on death or is some of the transfer done while living? If done while living, what is the time schedule? Staging gives the family member time to learn about wealth and perhaps adjust their lifestyle to get used to their increased wealth. Staging helps the donor determine how the beneficiary handles the wealth. Too much too soon can cause problems. I believe most individuals don’t “mature” until they are in their 30s. Large gifts at younger ages may result in spending for which your clients do not approve.

3. Which heirs: children, grandchildren, others, or perhaps non-family members? Some people don’t have any heirs.

4. How much to each? Treat all equally? I have argued the giver should determine what they think is fair (not necessarily equal) and be sure to let the heirs know their decisions in advance so as to reduce family discourse when they are not here. Your clients may want to be more generous to a handicapped relative or one with special needs. Discuss all this with the family in advance so they are not surprised.

5. It is quite possible that your clients and the receivers will have totally different values and viewpoints on how to use the wealth. Your client should understand the differences and be ok with it before making the gift.

6. Do they want to provide training to younger heirs on how to use the wealth? This can be a huge benefit for both the giver and the receiver. They can:
• Learn the difference between a credit card and a savings account. Learn the fundamental meaning of owning assets, something most kids don’t understand.
• Develop investment experience.
• Understand they may be different from their friends. They may leave college debt free, or actually have assets—what a huge benefit.
• Think about future uses of the assets such as buying a house or business.

7. Do your clients want to protect the assets from potential creditors for those receiving them? The more obvious risks for the recipients are: wild spending, lawsuits, and divorces.

8. There are multiple ways to structure the gift for the beneficiaries. They can be an outright gift to the individual. They also could be in a variety of trusts or partnerships, which contain protective measures for the beneficiaries. They can be simple or complex. They also can be designed to last for multiple generations and be free of estate taxes at each generation. Some of the tools include family limited partnerships and generation skipping trusts. Giving to family may also be combined with giving to charity using tools such as a charitable lead or donor trusts. These partially move some of the government’s share to charity.