• Peter C. Ciravolo

OCTOBER = Financial Planning Month!

Updated: Oct 22, 2021



Fall is in full swing, and so are the year end tasks for your clients' financial plans!




ADVANCED FINANCIAL PLANNING IDEA OF THE MONTH:


SLAT VS GRAT

Which is right for your High Net Worth client and their estate planning?

*DISCLAIMER - BC Brokerage is an insurance brokerage, not legal counsel. Please consult with a licensed estate planning attorney and Certified Public Accountant to see if a SLAT or GRAT is right for your clients' financial plan. Many times, these trusts can be funded with Life Insurance, and that is where we see it most times here at BC Brokerage.*

Spousal Lifetime Access Trust (SLAT):


A Spousal Lifetime Access Trust (SLAT) is a type of irrevocable trust for the benefit of one spouse (as well as children and grandchildren).


Including a SLAT will reduce your clients' taxable estate yet allow access if needed, but it can only be accessible by one spouse (not both). Typically an independent trustee, who you appoint, would approve distributions from the SLAT to the beneficiary spouse, children, and grandchildren.

The spouse who makes the gift to the SLAT, the grantor, would be responsible for paying income taxes during life. In addition, an appraisal would be required for your interest in any asset which is not publicly traded.

Few things to watch out for though:

-It is possible, with some risk, to create two SLATs, one for each spouse. There are legal risks to creating reciprocal trusts, but we can structure materially different trusts which both spouses create for the other spouse.

-A spouse who receives benefits from a SLAT may die prematurely; thereafter, the surviving spouse would receive no benefit from the assets in the deceased spouse’s SLAT. Thereafter, your children and grandchildren would receive a benefit.

-It is also possible that the spouse who receives the benefit during life will decide to divorce the other spouse and retain the benefit outside of the division of marital assets.

Grantor Retained Annuity Trust (GRAT)


A Grantor Retained Annuity Trust (GRAT) is an irrevocable trust to which the creator of the GRAT (the grantor) transfers assets and retains the right to receive fixed annuity payments from the trust for a specified number of years.

This option would not allow for access by either spouse and would only benefit your children. It is not a tool for generation-skipping tax avoidance.

The creation of a GRAT is a gift by the grantor to the remainder beneficiaries. The gift amount is equal to the excess of the initial value of the contributed assets over the present value of the annuity payments to the grantor discounted by the Section 7520 rate (approximately 1.2% as of July 2021).


After the GRAT makes all the required annuity payments, any property remaining passes to the designated beneficiaries (or trusts for their benefit) free of federal estate and gift tax.


A GRAT can be an option in this low-interest rate environment because of the potential for the GRAT’s assets to outperform the interest rate in effect in the month the trust was created.


If the grantor survives the annuity term, the property remaining in the GRAT will pass to the children, outright or in further trust, without the imposition of gift or estate tax.

If the grantor dies before the expiration of the annuity term, a portion or all of the GRAT assets will be included in the grantor’s estate for estate tax purposes.


While this option provides the potential for a zero valuation, it removes control from the grantor. Thus, for an early stage, a privately owned business is not an ideal vehicle as a loss of control is typically a non-starter.


BOTTOM LINE:


It is important to get creative with your HNW clients and their estate plans.

This is also a great way to network and grow your book with higher net worth clients.

The amount of money that is changing generations is at unprecedented levels, and they need your financial help and advice!


*DISCLAIMER - BC BROKERAGE is an insurance brokerage, not legal counsel. Please consult with a licensed estate planning attorney and Certified Public Accountant to see if a SLAT or GRAT is right for your clients' financial plan. Many times, these trusts can be funded with Life Insurance, and that is where we see it most times here at BC Brokerage.*





Heading to Denver November 8-12th for XYPN Live 2021?


We look forward to seeing you throughout the day at the general and break out sessions!

We will also be hosting a Happy Hour exclusively for XYPN Fee Only Financial Planners, their families, friends, and colleagues.


Wednesday November 10th 6pm-9pm local mountain time


Rock Bottom Brewery

1001 16th Street

Denver, CO, 80265

RSVP by emailing/calling/texting Peter. We look forward to meeting everyone!

peter@bc-brokerage.com

765.730.7146






Any cool trips planned this fall?


Peter just spent a long weekend in Portland, Oregon.

This picture was taken on the McKinzie River about 1.5 hours south of Portland near Eugene. Fly fishing for rainbow trout and whitefish!

We'd love to hear about your upcoming trip!









BC Brokerage, LLC

PO BOX 441032

Indianapolis, IN, 46244

765.730.7146

www.bc-brokerage.com


26 views0 comments

Recent Posts

See All