Five levels of real estate planning is a systematic approach to explain real estate planning in a way that can be easily followed. Which of the five levels you need to complete based on your specific purpose and situation?
Level 1: Basic plan
The situation in Level 1's plan is that you do not exist or existing will or live trust is obsolete or unique. The objectives of this type of plan are as follows.
o Reduce or abolish real estate taxes.
o Avoid expenses, delay and promotion related to wills in case of death or incompetence. And
o Protect heirs from successors, disabled people, creditors, former spouses (including former spouses).
In order to achieve these objectives, the irrevocable life trust that distributes the donor's will between the corporate trust and the trust, the general authority to the financial problem and the attorney's endurance due to medical care and lifestyle .
Level 2: irrevocable life insurance trust (ILIT)
The situation of the level 2 plan is that your real estate is planned to be larger than the real estate tax exemption. There is currently a loss of real estate and transfer of transfer tax, but Congress may revive both taxes this year (sometimes even retrospectively). Otherwise, on 1 January 2011, the real estate tax exemption ($ 3.5 million in 2009) will be $ 1 million, the top real estate tax rate (45% in 2009) will be 55%. In any case, you can make a cash presentation using a donation tax exemption of $ 13,000 / $ 26,000 per year for each beneficiary.
Level 3: Family Limited Partnership
The situation of the level 3 plan is that there is a real estate tax liability that exceeds the life insurance purchased at level 2. Using a gift tax exemption ($ 2 million for couples) to make a lifetime gift at a million dollars will remove the talented property and all future appreciation and income of that property from your property I will.
More people can deliver gifts to children if they can continue to manage talent. A family limited liability association (FLP) or a family limited liability company (FLLC) can play an important role in this situation. You are usually a general partner or manager and will continue to manage the assets of FLP or FLLC in its capacity. As a general partner or manager you can also pay reasonable administration fee for your service. In addition, by giving the benefits of FLP or FLLC to ILIT, you can pay insurance premiums using the income of FLP or FLLC, thereby increasing the annual fee of $ 13,000 / $ 26,000 for other kinds of gifts You can exempt gift tax.
Level 4: Qualified individual residential trust and donor-held pension trust
The situation of the level 4 plan is that it is necessary to reduce real estate after a donation tax exemption of 1 million dollars / 2 million dollars is used. Paying gift tax is cheaper than paying real estate tax, but most people do not want to pay gift tax. There are several ways to make basic gifts to children and grandchildren without paying an important donation tax.
One technique is qualified individual trust confidence (QPRT). In QPRT you can transfer the residence or vacation house to the trust for your child's interest and retain the right to use the annual residence. By retaining the right to occupy the residence, the value of the reminder rate decreases along with the gift items for billing purposes.
Another way is the assignor-held pension (GRAT). GRAT is similar to QPRT. Typical GRAT will be funded by a property that generates revenue such as shares in Sub-Chapter S or interest on FLP or FLLC. GRAT pays fixed annuity for the specified period. Because of the reserved pension, gifts to reminders (your child) are practically less than the current value of real estate.
You can design both QPRT and GRAT for a period of time sufficient to lower the value of the reminder's interest that you pass to your child to the nominal amount or zero. However, if you do not survive within the specified time period, real estate will be included in your real estate. Therefore it is recommended that ILIT be funded as a "hedge" against your death before the end of the specified period.
Level 5: Zero real estate tax plan
The plan of level 5 is a desire to "abolish" the IRS. The strategy links life insurance gifts and gifts to charity. For example, let's buy a $ 20 million real estate for a 55 year old couple. Given either asset growth or depletion, the spouse assumes that the real estate tax exemption is $ 3.5 million and will die in the year when the top real estate tax rate is 45%.
In the credibility of a typical financial credit shelter when the first spouse dies, $ 3.5 million will be assigned to trust in the trust shelter and $ 16.5 million will be assigned to the financial trust. Federal property tax is not paid. However, upon the death of a living spouse, the real estate tax is $ 5.85 million. The net result is that children inherit only 14.15 million dollars.
Due to the zero planning of real estate tax, life insurance of $ 13 million has been concluded for ILIT (including regulations that miss generations). These gifts will reduce real estate value to $ 18 million. In addition, the livelihood trust of the couple leaves the child with $ 3.5 million (estate tax exemption) each at the time of surviving spouse's death. The real estate balance ($ 11 million) will be exempt from public charity or private foundation - real estate tax. In summary, the zero real estate tax system provides children with 20 million dollars (ILIT to 13 million dollars, live trusts 7 million dollars) rather than $ 14.1 million. The charity receives $ 11 million without doing anything. IRS has received nothing, not $ 5.85 million.
In summary, in some advanced plans it is possible to reduce real estate taxes, avoid verification, show your wishes, protect creditors, ex-spouses, heirs from real estate taxes.
This provision is not intended to be used by taxpayers and can not be used for the sole purpose of avoiding fines that may be imposed on taxpayers.
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