The Wealth & Wisdom Blog

Grantor Retained Annuity Trust (“GRAT”)

Posted on May 28, 2020 by Cory Wessman

A “Grantor Retained Annuity Trust” (“GRAT”) is a planning strategy used to transfer wealth without necessarily using any federal gift tax exemption. Under this strategy, a donor irrevocably transfers assets to an irrevocable trust, but purposely retains a fixed annuity amount for a fixed period of years (called the “annuity period.”) While the donor will benefit from the fixed annuity amounts received back from the GRAT during the annuity period, the donor irrevocably gives up the right to benefit from the remaining assets (if any) that are remaining in the GRAT after the payments made to himself or herself following the end of the annuity period.

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Documenting Asset Transfers to Adult Children

Posted on April 30, 2020 by Cory Wessman

How are you going to remember these tumultuous days of the 2020 coronavirus pandemic? My three kids were each given a writing journal by my mother, who encouraged each of them to write about daily life in the midst of a pandemic, both for themselves and for future generations. Earlier this week, I also helped my kids bury a time capsule—a shoe box full of items that my kids envision would be of interest to future generations who are trying to understand how a family of five is living through a 2020 pandemic. Over these past few weeks, I have interacted with a few clients who have decided that, by reason of the most significant economic downtown in our lifetimes, now is the time to provide financial assistance to their adult children. Some clients are helping a child with an intra-family loan, while others are gifting assets to the child. In this month’s update, I provide a brief overview of the tax and legal implications of transferring assets to adult children, either by loan or gift, and stress the importance of documenting the client’s intentions in this regard.

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Signing Legal Documents Under Self-Quarantine

Posted on March 23, 2020 by Cory Wessman

Over the past few weeks, our firm has continued to operate as normal. We have hosted face-to-face meetings in our office, as well as video calls, telephone calls and emails. We have, however, observed an increase in the number of new or existing clients who are addressing while in a “self-quarantine” or “shelter in place” situation. In this month’s update, I provide a brief summary of the signing formalities associated with the four “basic” estate planning documents.

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Three Lessons on Appointing Fiduciaries from Ancient Israel

Posted on March 4, 2020 by Cory Wessman

Who should I appoint as my backup trustee and executor? This is perhaps the most common question posed by my estate planning clients. I recently studied the kings of ancient Israel. I thought that those of us who counsel clients on making appropriate key individual or “fiduciary” appointments could apply a few lessons learned from the lives of these kings; specifically, how not to appoint successor fiduciaries. As you and your clients consider their various fiduciary appointments, consider the following three principles taken from the stories of ancient Israel.

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Key Individuals (“Fiduciaries”) In Your Estate Plan

Posted on March 4, 2020 by Cory Wessman

Everyone completing an estate plan must give consideration to the individuals (or entities) making decisions on your behalf in the event of your incapacity or death. If you are married, you would likely name your spouse as the first “agent.” However, you would still name someone to serve if you (or, if married, both you and your spouse cannot serve. These are the important roles to fill:

Health Care Directive: Health care decisions in the event of your incapacity;
Power of Attorney: Financial and legal decisions in the event of your incapacity;
Guardianship: Care and custody of minor children in the event of death;
Trustee: Management of trusts for named beneficiaries; and
Personal Representative / Executor: Administration of expenses, transfer of assets in the event of death.

Unintended Consequences: The Use of Conduit Trusts for Retirement Accounts

Posted on February 3, 2020 by Cory Wessman

If you have read any of Malcom Gladwell’s books, or listen to his podcasts, you are acquainted with various examples of the law of unintended consequences. Gladwell demonstrates how well-intentioned efforts to solve societal problem might actually prove to be an impediment to success. In the 1990’s, Australian lawmakers enacted legislation requiring Australian children to wear bike helmets whenever riding bicycles. As it turned out, the relatively low supply of helmets created such a high cost for helmets that overall bike ridership declined significantly. In that case, the unintended consequence of the legislation was a decrease in the overall health of children.

Along a similar vein, by reason of the recently enacted “SECURE ACT,” an oft-used trust planning structure called a “conduit trust” will have unintended consequences for unsuspecting clients if not properly addressed and corrected. Before the enactment of the SECURE Act, it was possible to name a trust as a beneficiary of a retirement account after the death of the account owner and still obtain the “stretch” typically associated with required minimum distributions (“RMDs”) based upon the life expectancy of the trust beneficiaries. Even though the trust was the legal owner of the inherited IRA, the IRS would “see through” the trust’s ownership and use the life expectancy of the trust beneficiary (or beneficiaries) to determine the RMDs. In this fashion, it was possible to both (1) achieve the sought-after protections of trust ownership, and (2) minimize the income tax implications by “stretching” the withdrawal period over the life expectancy of the trust beneficiary (or beneficiaries). In order to qualify for this preferred “see through trust” tax treatment, however, it was necessary for the trust to be characterized as either a “conduit trust” or as an “accumulation trust.”

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The Death of the Stretch IRA and 2020 Transfer Tax Exemption Amounts

Posted on December 23, 2019 by Cory Wessman

Congress and President Trump recently enacted legislation that, while providing some candy in the average taxpayer’s Christmas stocking, also includes a small lump of coal. This post (i) makes you aware of the recent legislation that marks the official death of the so-called “stretch IRA,” and (ii) provides the relevant federal and Minnesota state transfer tax thresholds for 2020.

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Use it or Lose It: The Use of Spousal Lifetime Access Trusts

Posted on December 4, 2019 by Cory Wessman

“I am suddenly feeling ill.” I overhear a friend feign a cough as he calls his boss, reporting his absence from work by reason of sickness. As we tee off together from the first hole at our favorite golf course, my friend reports to us, his golfing buddies, that while he has no vacation days remaining, he is fortunate to have one sick day remaining. Since he loses that sick day at the end of the year, he might as well use it by spending this beautiful summer day on the golf course.

In this month’s update, I wish to briefly summarize the current federal estate tax landscape and how a type of irrevocable trust structure called a “Spousal Lifetime Access Trust” could serve to allow high-net-worth clients to “use” their current federal estate tax exemption amounts before these exemptions are lost, either by reason of the “sunset” of current tax law in 2026 or by reason of legislative changes that are likely to occur before then.

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Planning for Grandchildren

Posted on November 9, 2019 by Cory Wessman

I am not here to see you, son, I’m here to see your kids! Anyone in my family knows my mother does not play “Minnesota nice;” she says it how it is. Over Thanksgiving, and really during any family gathering, my mother makes it a point to prioritize time with her beautiful, athletic, and well-adjusted grandchildren. My siblings and I don’t need to be present for my mother to enjoy Thanksgiving.

Perhaps by reason of seeing their own grandchildren over the Thanksgiving holiday, it seems like I have many discussions this time of year with my clients about how to best provide for their grandchildren through their estate plan. In this month’s update, I provide (i) some of the reasons for why clients decide to provide directly for grandchildren; (ii) the tax rules relevant to making lifetime gifts for grandchildren, and (iii) emphasize the importance of coordinating an estate plan with lifetime gifts.

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Vestigial Estate Planning

Posted on October 4, 2019 by Cory Wessman

Have you listened to any good books on tape recently?

Neither have I, and yet I have not stopped using the term “books on tape” when referencing the audiobooks on my Audible subscription. My use of the term “books on tape” has caused no shortage of confusion with my children, who have never used a CD player, let alone a cassette player. Just as physicians and biologists are interested in determining what functional use a body part may or may not have, our firm attempts to identify aspects of a client’s estate plan that are only vestiges of the past; that is, anything that has no real current purpose and is just weighing down the clients and their advisors. Outdated (or “vestigial”) estate planning structures can take several forms, including: (1) outdated provisions within a client’s legal documents, (2) the investment or bank accounts owned by a client that no longer serve the purpose originally intended, and even (3) an outdated physical medium by which information is being held or communicated.

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