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Act Now to Keep Wealth in the Family

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I’ve had the pleasure of meeting Ray Buckner at our financial and wealth-building workshops in the Chicago area.  He had some great ideas he wanted to share and I thought they were very relevant to being able to not only take care of yourselves, but looking towards the legacy of your future generation(s).

Enter Ray Buckner…

Interest rates, low asset values, and the legislative outlook in Congress make this the opportune time for estate planning.

When values are low and expected to rise, the stage is set for a gift. You have the potential to live beyond 100. If that happens, your children will be 70 and still waiting for their inheritance. So, why not transfer wealth now?
Under current law, you can give $1,000,000 during life without gift tax and pay 45% on any taxable gift over that amount. The same 45% rate applies to estates over $3,500,000. If you have already used your $1,000,000 exemption, or want to preserve it, then what should you do? The best strategy is to get future appreciation out of your estate and into the hands of your appreciative children.

So, how can you make a gift that is not really a gift? Consider the Grantor retained annuity trusts, or GRATs, and other sophisticated strategies can take advantage of depressed asset values and low interest rates to pass along more wealth to your family, where it belongs, and give a smaller slice to Uncle Sam.

GRATs work like this: You set up an irrevocable trust and fill it with assets you expect to increase in value. Irrevocable means you can’t change it or withdraw money at will once it’s created.
You also pick a term over which the trust will pay back your assets, plus interest. The IRS establishes interest rates, which set monthly and fixed for the trust’s term. A recent monthly rate was 2.4%. As one of the lowest rates ever, this rate is a primary motivator to create a GRAT now. If you think you can achieve more than a 2.4% return over, say, the next five, 10 or 20 years, then you should consider funding a GRAT immediately.

The advantage of the trust is that it fixes the amount for gift tax purposes. Only the amount you first place in the trust, plus the government-established interest rate – what’s called the hurdle rate – will be counted for estate taxes.
Any appreciation above that goes to heirs tax free. Under current law, you can gift up to $13,000 a year per donee (or $26,000 from each married couple) or a lifetime total of $1 million.  While most people put stocks into trusts, you can use a range of different types of properties – commercial real estate, bonds, or artwork.  The more the trust assets grow and the less it repays you, the better off your family will be.

Even if the assets don’t grow, you’ll break even, as if you never had set up the trust.

The GRAT offers the satisfaction of your children receiving wealth while you can watch and guide them, and of course, the joy of doing so with little or no taxes due.

To find out more info about Ray and his work, CLICK HERE.

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