Flexibility Is The Key To Navigating A Roiling Sea Of Tax Law Changes
Heraclitus, the Greek philosopher, said more than 2,500 years ago that the only "constant" in life was change. Those of us who live in the 21st century know how right Heraclitus was, especially those of us who pay taxes.
It seems Congress endlessly tinkers with the U.S. Tax Code, cutting, adding or refining taxes and their applications. The result? Todays code is four times as long as "War And Peace," and the regulations needed to help taxpayers decipher the document are nearly five times as long as the code itself.
So how can you assist your clients in navigating this roiling sea of tax law changes and ultimately reaching their estate, business and retirement planning objectives? How can your clients possibly keep their eyes on the horizon when there are waves constantly frothing below them?
Flexibility is the key to success. Your clients need to be able to change, adjust and modify their plans to ensure they are always on course to reach their designated planning objectives, despite tax law detours. Clients need flexible financial tools, instruments, products and trusts–as well as flexible language in their last will and testament–to succeed.
Flexible trusts should be the centerpiece of estate, business and financial plans for both tax and non-tax reasons. Trusts allow a taxpayer to consolidate assets and centralize the management of those assets with the help of professional co-trustees. Trusts can also help insulate assets from creditor and litigation proceedings.
Gift-tax-free transfers to beneficiaries can be facilitated through the use of trusts with techniques such as spousal gift splitting, multiplication of annual exclusion gifts through the use of Crummey power beneficiaries, and the use of gift discounting/minimization strategies.
Depending on which state a trust is implemented in, it may be structured to last forever. There are a number of states that allow this. Other states have "rules against perpetuity" (RAP) and require the trust to vest its assets with the beneficiaries after a period of time equal to the lives of the trust beneficiaries plus 21 years and nine months.
Trusts can be structured as dynasty trusts and thus avoid estate taxation as the assets pass from one generation to the next without end. This is referred to as a generation-skipping trust (GST) and occurs as a result of the proper allocation of the generation skipping tax exemption to each and every gift made to the trust.
Even irrevocable trusts can be flexible. A trust grantor can give as much discretion to the trustee as desired to sell, distribute or relocate trust assets to another jurisdiction in conjunction with future tax law changes or family circumstances. Special powers of appointment of trust property can be given to a grantors spouse to adjust the provisions of the original trust with his or her last will and testament. The protector provision allows a non-fiduciary to change and alter the beneficiaries of the trust.
