Advanced estate planning—something more than a simple will or basic living trust—can be critical for people with valuable, taxable estates. It goes above and beyond a basic foundation and provides options for minimizing or even eliminating estate taxes. Advanced estate planning can be used to perpetuate family values and protect assets for the benefit of future generations.
You can reduce or even eliminate estate taxes by gifting assets into an irrevocable trust for eventual transfer to your beneficiaries or even to charities. But the trust must be irrevocable.
A simple revocable trust will allow your estate to avoid probate, but the Internal Revenue Service takes the position that you still own the assets you place into such a trust. You can revoke the revocable trust entity and take the assets back at any time. You remain in control of them.
Not so with a more advanced irrevocable trust. Placing assets in an irrevocable trust is a permanent decision. You're relinquishing ownership. Someone else—not you—must act as trustee. But if you can't control them and you don't legally own them at the time of your death, they don't contribute to your taxable estate.
It doesn't have to be an all-or-nothing deal. If you own some significantly valuable assets that you know you want to transfer to a certain beneficiary, you can place them alone into an irrevocable trust and maintain control over your other property.
Different types of trusts can be established to create an ongoing legacy for future generations as well. Many states allow trusts to continue for hundreds of years or even into perpetuity so you can establish dynasty trusts for their current and future family members.
You can also create a legacy in your community by setting up charitable trusts or a private foundation that will provide a self-perpetuating endowment for years to come.
For those who have accumulated even minimal wealth, the fear of losing it all in a lawsuit can be a great concern. Some professions are more prone to lawsuits than others and, of course, accidents can happen.
Many advanced trusts such as spousal lifetime access trusts (SLATs) not only help to minimize or eliminate estate taxes but offer the added bonus of protecting the assets owned by the trust against lawsuits and in the event of divorce. Again, the trust must be irrevocable. What you no longer legally own is not accessible.
Domestic asset protection trusts and certain offshore trusts are specifically designed to keep assets away from creditors and ex-spouses. Other advanced techniques, such as gifting through a family limited liability company, add an additional layer of asset protection for the property owned by the company.
You'll most likely need the help of an attorney to formulate any estate plan that goes beyond a last will and testament or basic revocable living trust. Remember that irrevocable trusts cannot be undone if you change your mind after significant life changes. An attorney can help you plan for all eventualities and make sure your estate plan achieves exactly what you want it to achieve.