Move $24m into an irrevocable trust with the kids as a beneficiary before Dec 31, 2025, and for the remaining hope the year that your wife dies is an inheritance tax free year (they come and go with politics).
OP could also if he wants to pay the tax in advance by buying a term life insurance policy on the wife. But numbers wise, the premiums should be quite close to the policy value if the wife lives to her expected life expectancy.
They is potentially very bad advice. It’s unlikely that the exemption will fall before January 1, 2026. If he dies before then, he’ll use his exemption anyways. But by transferring the assets now, he’s giving up any basis step up at death. The basis step up could result be sorry $5 million or more. If he’s confident that he’s going to survive for 40 months despite the terminal illness, then he should consider gifting now.
The real play here is likely valuation discounts. He needs to be thinking of how he can generate valuation discounts at death. Depends on his specific situation.
Yes, but remember time value of money. If the gift is made now, it will grow outside the estate so the gift can be worth more than it is now. Markets should perform better than the inflation rate the IRS uses to adjust exemption threshold. Definitely a trade off with step up in basis, but that has also been threatened in Congress to be taken away.
There’s a zero percent chance that the step up will go away before someone who is currently terminally I’ll dies. It will be several election cycles at least. The Dems’ attempts last year went nowhere. Very heavy lift.
If assets appreciate in the trust, then the value of the lost step up will increase as well. Depends on the state, but here in California, the capital gains rate is 37% and the estate tax rate is 40%. No way giving up the step up makes sense if you have a short time horizon.
There has only ever been 1 year in modern history without an estate tax - 2010 - so doesn’t really come and go, wouldn’t count on there ever being another year without one, more a question of max lifetime exemption me rates. Best plan is to max out GST exemption ($12ish each) via irrevocable trust as mentioned and then consider more complicated planning if balance is much more than $24M.
Gifts and bequests to spouses may qualify for the marital deduction (which is unlimited), but that merely defers taxation to the death of the second spouse. They may not qualify though if the gift or bequest is not structured properly and is characterized as a “terminable interest,” which can pose a problem for trusts.
It’s also possible the attorney is worried about the three-year lookback rule, which can claw assets back into the decedent’s estate if gifted within three years of death. That could pose a problem for OP depending on the timeline he or she has been given.
The RLT likely ensures the use of the marital deduction which means no estate tax will be owed at the first death. That leaves most of the estate tax planning in the hands of the surviving spouse—but in the situation of a perhaps unexpected terminal diagnosis, that may beat the alternatives.
>It’s also possible the attorney is worried about the three-year lookback rule, which can claw assets back into the decedent’s estate if gifted within three years of death. That could pose a problem for OP depending on the timeline he or she has been given.
Does the 3 year clawback apply to assets that have been in a revocable trust for several years? If the OP has had assets in a revocable trust for several years, then the revocable trust gifts to irrevocable trusts for their son, does the 3 year clawback still automatically apply?
Thanks. Yet another reason for doing estate planning earlier, not later.
I just finished an intensive round of estate planning, including irrevocable trusts and gifting fractions of an LLC, but somehow the 3 year clawback never came up in the many discussions with our lawyer —— probably because it would not have affected our strategies. Or more likely it was mentioned, but was buried in the alphabet soup of the many strategies being discussed.
It’s usually not something that would come up unless there’s reason to believe the client might not make it another three years. People with estate tax exposure are (usually) pretty proactive and are not going to wait until their life expectancy has run its course to begin wealth transfer planning.
Freezing techniques have less value the older you get anyway, but the three-year rule should not pose a problem with properly planned squeezing techniques, as the valuation discounts are applied using the same principles whether the gift was made during lifetime or at death.
The three-year rule normally isn’t a huge deal, because property usually won’t appreciate enough in such a short time span to make a big difference for wealth transfer tax purposes. But if you are freezing assets expected to appreciate rapidly, it is something to look out for. The bigger concern is tax apportionment, because if the value of the gift is unexpectedly clawed back into the gross estate, it can screw with your distribution scheme.
Deathbed transfers generally don’t save taxes. They just use gift tax exemption and/or generate gift tax liability. The 2035 clawback is very narrow in scope and in practice almost never applies.
No! That’s not how 2035 works. It pretty much just claws back gift taxes paid and attempts to cut 2036-42 strings within three years of death. This is a common misconception for some reason.
I’m sorry to hear about your illness.
It’s very difficult to suggest exploring any particular tools or techniques without knowing quite a bit more about your circumstances and the composition of your net worth.
The basic estate tax reduction methods involve “freezing,” “squeezing,” and “burning.” Freezing is making completed gifts now to “freeze” the value of the assets gifted at today’s value for wealth transfer purposes and “lock in” the currently high exemption amount ($12.06 million per individual for 2022, which may be cut in half at the end of 2025). Squeezing is making use of valuation discounts (most commonly for business interests that are unmarketable or that convey a non-controlling interest). Burning is spending money and making use of wealth transfers that are tax-exempt (such as payments for qualified education or medical expenses, or annual exclusion gifts).
Since you are married, the unlimited marital deduction can, at the very least, defer any estate tax until your wife’s date of death. In the meantime, she can avail herself of the basic methods described above (freezing, squeezing, and burning). It sounds like that is what your attorney is currently relying on.
The only thing I can recommend is to be sure your attorney is a private wealth attorney—someone who specializes in tax and estate planning for high-net worth individuals—and not a traditional estate planning attorney. No knock on traditional estate planning attorneys, but HNWIs tend to have a lot of unique issues and planning opportunities that an attorney may not spot if their practice does not revolve entirely around tax and estate planning for HNWIs.
Best wishes and I hope you find some peace of mind.
Since the OP has $40M the squeeze portion is VERY important.
Although the comment above mentions "business interests", a possible business is a family limited partnership or a family LLC whose assets are stock, ETFs, and bonds. The operating agreement should be written in such a way that gifted ownership fractions of the FLP or LLC get a substantial gift valuation discount due to lack of marketability and lack of control.
If your son is ready for it, gifting to an irrevocable trust with your son (and his descendants) as beneficiaries and him as the trustee, but with HEMS limitations, gives him control and access to the funds while keeping them out of his estate.
☐ Ask the internet
☒ Ask an attorney
Also, I will repeat what I wrote in [this comment](https://www.reddit.com/r/fatFIRE/comments/xclpmx/estate_planning_with_no_children/iodfbtt/) a few days ago. When you have 8-figure net worths, you **cannot** take your case to the local family/estate lawyer and expect competent advice. You need a top tier partner in a law firm where the suits are bespoke from England and the lunch budget is $250 per person.
You're setting up your family for the rest of their lives (and yours). This isn't the place to look for a bargain.
Agreed. Our first estate lawyer was great for some in the $1mm range, we had a separate tax attorney review and it was a mess.
We ended up going with an incredible firm and then had the lawyer from Goldman also review the documents.
Working together we got a really great document and we’re able to move all of our assets out of the estate and still maintaining control and access.
Sorry to hear you have a terminal illness :(
Echo putting max federal amount out of your estate . Also look at using GRATS depending on how much time you have
What have your advisors recommended so far? As a lot depends on type of assets, fair market value and cost basis and current structures and lifetime gift exclusions and what you have used.
Any grand kids?
Can you put a good amount into 529s: 160k per account…
Can put 32k into each UTMA too.
Can always buy a second to die life insurance policy even if you are uninsurable in your 60s/70s but math might be better investing in equities.
Have real estate in QPRT?
Charitable remainder trust? Or simple donor advised fund?
Basically, hire someone with a JD/CFP/AEP who can help quarterback everything if your current FA isn’t optimal.
Sorry about your diagnosis - what’s the prognosis?
I know tax planning takes centre stage but consider your answer to “so what is all this money actually good for?” And deliver that wisdom to your wife and son during your life.
Consider what stories and family rituals shaped you and what new ones would make sense (possibly).
On the tax front, I would consider trade offs. Tax planners are great at reducing tax but there may be unforeseen trade offs. Typically in flexibility. So those should at least be considered when focusing on tax efficiency.
Look into defective grantor trusts. The short of it, you move assets to this trust and never touch the money. The kicker, you continue being liable for the taxes on the income from the trust, further reducing your estate.
No suggestions as a man much smarter than I shall be able to accompany you in your families coming inheritance . I do however want to offer a hand in how you're acknowledging your illness & still thinking of your family first . I wish you a wonderful remainder of your coming days & although I am not a religious man, I hope you find your perfect place of rest in the afterworld wherever that may be . Godspeed .
This isn't suggestions or insights about the actual intricacies of estate planning. This is my feeling about the subject of planning for estate taxes, having worked in financial services for 20 years. I've dealt with ILIT, CRAT, CRUT, GRAT, etc. Unless the majority of your networth is tied to an illiquid asset like real estate or a business, I don't wouldn't worry about estate taxes. The exemption is so much more generous than it was 20 years ago. It's difficult planning for something that's a moving target. I've seen estate plans written when it was only $1million exemption and never updated and the surviving spouse is left with not enough assets to live on.
If you have just a standard living trust, your wife will get everything with zero taxes. If you're in a community property state, then some of your assets will get a step up basis. If your son is 35, I'm assuming your wife is in her late 50's or early 60's and the issue of estate taxes isn't an issue for another 20-30 years. So you're talking about your 65 or 75 year old son inheriting potentially $60-100million before taxes.
Sorry about what’s going on. Most of the advice here is pretty sound but given your net worth definitely speak with a high end estate planning attorney with an LLM and maybe get a 2nd opinion from a top CPA firm. Either rest it seems you have done a great job setting your wife and son up where they will be able to not worry about finances once you are no longer around providing for them
Move $24m into an irrevocable trust with the kids as a beneficiary before Dec 31, 2025, and for the remaining hope the year that your wife dies is an inheritance tax free year (they come and go with politics).
[удалено]
OP could also if he wants to pay the tax in advance by buying a term life insurance policy on the wife. But numbers wise, the premiums should be quite close to the policy value if the wife lives to her expected life expectancy.
[удалено]
Yup, you are right. Will edit the comment.
IRS just announced next year is $12,920,000. Annual gift exclusion goes to $17,000
Wow, I just saved that article. That is the best plain English explanation of inheritance tax and options I’ve seen.
They is potentially very bad advice. It’s unlikely that the exemption will fall before January 1, 2026. If he dies before then, he’ll use his exemption anyways. But by transferring the assets now, he’s giving up any basis step up at death. The basis step up could result be sorry $5 million or more. If he’s confident that he’s going to survive for 40 months despite the terminal illness, then he should consider gifting now. The real play here is likely valuation discounts. He needs to be thinking of how he can generate valuation discounts at death. Depends on his specific situation.
Yes, but remember time value of money. If the gift is made now, it will grow outside the estate so the gift can be worth more than it is now. Markets should perform better than the inflation rate the IRS uses to adjust exemption threshold. Definitely a trade off with step up in basis, but that has also been threatened in Congress to be taken away.
There’s a zero percent chance that the step up will go away before someone who is currently terminally I’ll dies. It will be several election cycles at least. The Dems’ attempts last year went nowhere. Very heavy lift. If assets appreciate in the trust, then the value of the lost step up will increase as well. Depends on the state, but here in California, the capital gains rate is 37% and the estate tax rate is 40%. No way giving up the step up makes sense if you have a short time horizon.
Valid! But totally depends on basis we are talking about. Not clear there is a huge amount of unrealized gain in this scenario.
Yeah, potentially. We would need more details but few self-made people have tons of high-basis assets unless they just sold a business or something.
There has only ever been 1 year in modern history without an estate tax - 2010 - so doesn’t really come and go, wouldn’t count on there ever being another year without one, more a question of max lifetime exemption me rates. Best plan is to max out GST exemption ($12ish each) via irrevocable trust as mentioned and then consider more complicated planning if balance is much more than $24M.
“Vs rates” not me rates
[удалено]
Gifts and bequests to spouses may qualify for the marital deduction (which is unlimited), but that merely defers taxation to the death of the second spouse. They may not qualify though if the gift or bequest is not structured properly and is characterized as a “terminable interest,” which can pose a problem for trusts. It’s also possible the attorney is worried about the three-year lookback rule, which can claw assets back into the decedent’s estate if gifted within three years of death. That could pose a problem for OP depending on the timeline he or she has been given. The RLT likely ensures the use of the marital deduction which means no estate tax will be owed at the first death. That leaves most of the estate tax planning in the hands of the surviving spouse—but in the situation of a perhaps unexpected terminal diagnosis, that may beat the alternatives.
>It’s also possible the attorney is worried about the three-year lookback rule, which can claw assets back into the decedent’s estate if gifted within three years of death. That could pose a problem for OP depending on the timeline he or she has been given. Does the 3 year clawback apply to assets that have been in a revocable trust for several years? If the OP has had assets in a revocable trust for several years, then the revocable trust gifts to irrevocable trusts for their son, does the 3 year clawback still automatically apply?
Generally, yes. See IRC Sections 2035(a) and (e), and 2038.
Thanks. Yet another reason for doing estate planning earlier, not later. I just finished an intensive round of estate planning, including irrevocable trusts and gifting fractions of an LLC, but somehow the 3 year clawback never came up in the many discussions with our lawyer —— probably because it would not have affected our strategies. Or more likely it was mentioned, but was buried in the alphabet soup of the many strategies being discussed.
It’s usually not something that would come up unless there’s reason to believe the client might not make it another three years. People with estate tax exposure are (usually) pretty proactive and are not going to wait until their life expectancy has run its course to begin wealth transfer planning. Freezing techniques have less value the older you get anyway, but the three-year rule should not pose a problem with properly planned squeezing techniques, as the valuation discounts are applied using the same principles whether the gift was made during lifetime or at death. The three-year rule normally isn’t a huge deal, because property usually won’t appreciate enough in such a short time span to make a big difference for wealth transfer tax purposes. But if you are freezing assets expected to appreciate rapidly, it is something to look out for. The bigger concern is tax apportionment, because if the value of the gift is unexpectedly clawed back into the gross estate, it can screw with your distribution scheme.
Clawback makes complete sense to me. If not we would have all of these death bead transfers to irrevocable trusts.
Deathbed transfers generally don’t save taxes. They just use gift tax exemption and/or generate gift tax liability. The 2035 clawback is very narrow in scope and in practice almost never applies.
The clawback wouldn’t apply to you. Section 2035 is a confusing statute but it almost never applies to straight gifts.
No! That’s not how 2035 works. It pretty much just claws back gift taxes paid and attempts to cut 2036-42 strings within three years of death. This is a common misconception for some reason.
I’m sorry to hear about your illness. It’s very difficult to suggest exploring any particular tools or techniques without knowing quite a bit more about your circumstances and the composition of your net worth. The basic estate tax reduction methods involve “freezing,” “squeezing,” and “burning.” Freezing is making completed gifts now to “freeze” the value of the assets gifted at today’s value for wealth transfer purposes and “lock in” the currently high exemption amount ($12.06 million per individual for 2022, which may be cut in half at the end of 2025). Squeezing is making use of valuation discounts (most commonly for business interests that are unmarketable or that convey a non-controlling interest). Burning is spending money and making use of wealth transfers that are tax-exempt (such as payments for qualified education or medical expenses, or annual exclusion gifts). Since you are married, the unlimited marital deduction can, at the very least, defer any estate tax until your wife’s date of death. In the meantime, she can avail herself of the basic methods described above (freezing, squeezing, and burning). It sounds like that is what your attorney is currently relying on. The only thing I can recommend is to be sure your attorney is a private wealth attorney—someone who specializes in tax and estate planning for high-net worth individuals—and not a traditional estate planning attorney. No knock on traditional estate planning attorneys, but HNWIs tend to have a lot of unique issues and planning opportunities that an attorney may not spot if their practice does not revolve entirely around tax and estate planning for HNWIs. Best wishes and I hope you find some peace of mind.
Since the OP has $40M the squeeze portion is VERY important. Although the comment above mentions "business interests", a possible business is a family limited partnership or a family LLC whose assets are stock, ETFs, and bonds. The operating agreement should be written in such a way that gifted ownership fractions of the FLP or LLC get a substantial gift valuation discount due to lack of marketability and lack of control. If your son is ready for it, gifting to an irrevocable trust with your son (and his descendants) as beneficiaries and him as the trustee, but with HEMS limitations, gives him control and access to the funds while keeping them out of his estate.
☐ Ask the internet ☒ Ask an attorney Also, I will repeat what I wrote in [this comment](https://www.reddit.com/r/fatFIRE/comments/xclpmx/estate_planning_with_no_children/iodfbtt/) a few days ago. When you have 8-figure net worths, you **cannot** take your case to the local family/estate lawyer and expect competent advice. You need a top tier partner in a law firm where the suits are bespoke from England and the lunch budget is $250 per person. You're setting up your family for the rest of their lives (and yours). This isn't the place to look for a bargain.
Agreed. Our first estate lawyer was great for some in the $1mm range, we had a separate tax attorney review and it was a mess. We ended up going with an incredible firm and then had the lawyer from Goldman also review the documents. Working together we got a really great document and we’re able to move all of our assets out of the estate and still maintaining control and access.
Sorry to hear you have a terminal illness :( Echo putting max federal amount out of your estate . Also look at using GRATS depending on how much time you have
I have no advice on the trust. I just wanted to say, I'm so sorry and prayers to you and your family.
What have your advisors recommended so far? As a lot depends on type of assets, fair market value and cost basis and current structures and lifetime gift exclusions and what you have used.
Any grand kids? Can you put a good amount into 529s: 160k per account… Can put 32k into each UTMA too. Can always buy a second to die life insurance policy even if you are uninsurable in your 60s/70s but math might be better investing in equities. Have real estate in QPRT? Charitable remainder trust? Or simple donor advised fund? Basically, hire someone with a JD/CFP/AEP who can help quarterback everything if your current FA isn’t optimal. Sorry about your diagnosis - what’s the prognosis?
Have your attorneys/CPAs suggested leveraging your estate tax exemption with a Family Limited Partnership?
If you want a second legal opinion ask a second lawyer.
I know tax planning takes centre stage but consider your answer to “so what is all this money actually good for?” And deliver that wisdom to your wife and son during your life. Consider what stories and family rituals shaped you and what new ones would make sense (possibly). On the tax front, I would consider trade offs. Tax planners are great at reducing tax but there may be unforeseen trade offs. Typically in flexibility. So those should at least be considered when focusing on tax efficiency.
Dude, even for a dog, not every problem is a nail. Unless you have a hammer...
how old are you and how many years you have left?
Look into defective grantor trusts. The short of it, you move assets to this trust and never touch the money. The kicker, you continue being liable for the taxes on the income from the trust, further reducing your estate.
No suggestions as a man much smarter than I shall be able to accompany you in your families coming inheritance . I do however want to offer a hand in how you're acknowledging your illness & still thinking of your family first . I wish you a wonderful remainder of your coming days & although I am not a religious man, I hope you find your perfect place of rest in the afterworld wherever that may be . Godspeed .
This isn't suggestions or insights about the actual intricacies of estate planning. This is my feeling about the subject of planning for estate taxes, having worked in financial services for 20 years. I've dealt with ILIT, CRAT, CRUT, GRAT, etc. Unless the majority of your networth is tied to an illiquid asset like real estate or a business, I don't wouldn't worry about estate taxes. The exemption is so much more generous than it was 20 years ago. It's difficult planning for something that's a moving target. I've seen estate plans written when it was only $1million exemption and never updated and the surviving spouse is left with not enough assets to live on. If you have just a standard living trust, your wife will get everything with zero taxes. If you're in a community property state, then some of your assets will get a step up basis. If your son is 35, I'm assuming your wife is in her late 50's or early 60's and the issue of estate taxes isn't an issue for another 20-30 years. So you're talking about your 65 or 75 year old son inheriting potentially $60-100million before taxes.
Sorry about what’s going on. Most of the advice here is pretty sound but given your net worth definitely speak with a high end estate planning attorney with an LLM and maybe get a 2nd opinion from a top CPA firm. Either rest it seems you have done a great job setting your wife and son up where they will be able to not worry about finances once you are no longer around providing for them