Freeze Frame: Tools for Estate Planning, Come What May

Freeze Frame: Tools for Estate Planning, Come What May

I’m feeling like Odysseus today: strapped to the mast with a big-n-tall belt bought in the stoa of Ithaca, wondering if the siren melodies of uncountable pundits are guiding me home or pulling me towards dangerous shoals.

Predictions abound, auguring the next four years, with attention focused on a Biden presidency’s impact on estate planning, the advisory business and our phalanx of clients, the wealthier ones in particular. The richest are targets today – vulnerable Colossi, or so it seems – yet we have ways of making them safer.

The first order is to map out a course. There’s no sense in sailing for nearby Lesbos, no matter the lure of its perfumed lemon groves, if we’d be safer in far-away Tarshish – mythical, so metaphorical. Perhaps it’s best simply to stay put and rely on the kindness of neighbors – and that means us.

Here is the still-current base case for planners and clients: the Tax Cuts and Jobs Act of 2017 set us up pretty. A considerable estate can be left to one’s heirs without stirring the Hydra-headed tax monster. Would that it could last forever.

A reminder of basics: under TCJA, until December 31, 2025, estates exceeding $11.2 million are assessed at a 40% estate tax. This exclusion, indexed to inflation, is a healthy rise on the pre-reform $5 million. Married couples can combine their exemptions; combined estates that exceed the limit are taxed at 40%, too. For 2020, the exemption is $11.58 million for individuals, $23.16 million for marrieds. On January 1, 2026, after glittering midnight, the exemptions will return to pre-TCJA amounts, adjusted for inflation.

This ‘sunset’ has attracted attention, with people like me warning to make hay, set sails, thrash those oarsman and so on – time mah-chez on, said my old man, the eternally ancient Greek. I think: no matter what anybody in the press counsels, divines or otherwise claims oracular, it’s time to get on your horse and ride.

Recall my own words of last week: our VP-in-waiting, Kamala Harris, has stated: “On day one, Joe Biden will repeal that tax bill.” He can’t do so by fiat, so he’ll need help from Congress. Expect a brisk fight in the Senate. Clash of Titans doesn’t mean stalemate, though. If I were you – and you mean the world to me, readers – I wouldn’t plan for the best. The odds offered are historically poor.

And what about that Senate? Some thought-strokers are sanguine, predicting no sea change. Republicans will shield us from excess, they say, overlooking that wraith-slim majority. A few votes horse-traded and the unwelcome could spring. Repeat this, again: the wealthy aren’t popular, and even Republicans can play to the gallery – related to the word galley, where the majority are chained rowing – sometimes even for good. Respect yourself, protect yourself – as we used to say in the 70s, though I can’t recall why.

Consider this, too: midterm elections are just two years away – an eye-blink for the aged like me. You just never know; political swings can be wild. If only we could freeze things the way they are… well, believe it or not, it’s an option.

Let’s examine our locker of tricks. You want to protect a major estate, enjoy a comfortable retirement, leave something to children, grandkids and others dearly beloved. Taxes, you’ve paid them – enough, you cry. The wealthy pay disproportionately; it’s in all the figures, so that right is earned – I’ve said it, you can quote me. You and we are running the show, at least for today.

Here’s what we want, as hinted: a strategy to freeze your estate. The estate-freeze approach is old as Mount Athos, and aims to transfer assets to whoever you choose without blood-draining taxes. You can’t do it alone: professional help is critical. Federal law is complex; the states have their say; the tax collector is fickle and changeable. Don’t let mild language fool you: the wealthy are targets, and strong men and women need armaments. Like…

Trusts – they’re your friend. We like the GRAT and its cousin the CLAT, and we often recommend the SLAT. Bear with me. This is as whimsical as estate planning gets:

Grantor Retained Annuity Trusts – GRATs are great for assets that have strong appreciation potential, and work well in low-interest-rate environments such as today. The grantor creates the trust and receives an annuity for a set period. When the term ends, remaining assets pass to beneficiaries. GRATs are solid tools for limiting estate and gift taxes.
Charitable Lead Annuity Trusts – Similar to GRATs, except that a charity receives the annuity. Once the set term is complete, remaining assets are transferred to the grantor’s beneficiaries. Favorable estate and tax-planning advantages accrue to estates that establish CLATs.
Spousal Lifetime Access Trusts – SLATs are irrevocable trusts created by one spouse to benefit the other. When the establishing spouse dies, the SLAT makes payments to the survivor. SLAT assets are excluded from the founder’s estate, shielding them from estate taxes. In addition to other benefits, SLATs provide some bankruptcy and litigation protection for the assets.

Freeze-frame specialists can also structure installment sales of assets, help tax-advantageously transfer a closely held business or simply advise on gift giving under today’s elevated tax-free exclusion of $15,000. These are just some of the subtle instruments available to wealthy clients, with expert advisories ready to set up structures before the day gets too late.

A final note: when considering your legacy, I can recommend wisdom, I hope. How much should you leave to heirs? Consider this principle: enough to do anything, not enough to do nothing. The wealthy’s bad rap comes less from their achievements (doubters challenge ‘bootstrapping’; we know better), but the public’s opprobrium, not to say teeth grinding, at the spectacle of undeserving youth rolling in parental largesse – this is the heart of their considerable anger. Maybe something should be done.

Well, it’s none of my business, and this nosey Greek nose precedes reason, sometimes. I do beg your pardon. But, still – mull it over. There won’t be a test; not just yet, anyway.

The Long Goodbye: Delaying Retirement, Working Forever, and Life Insurance in a Postmodern World To Have and Have Not: Proposition 19 and Its Estate Planning Implications