Common Client Tax Planning Problems Cheat Sheet

Although there are many new and interesting tax planning techniques, sometimes it is the tried-and-true standards that are overlooked, that may best provide the solutions to estate and income tax problems.  Here is a useful list of estate planning scenarios and possible solutions.

College Planning

Funding a young child's future education

1. Outright gifts to the child;
2. Make gifts under the Uniform Transfers to Minors Act for the benefit of the child; 
3. Gifts to Trusts for the benefit if minors, including:
   1. Section 2503(c) Trusts;
   2. Section 2503(b) Trusts; 
   3. Crummey Trusts; and 
   4. Matching grant trust.
4. Participate in a Qualified Tuition Plan, also known as a Section 529 Plan; 
5. Use an Educational IRA; or 
6. Hire the child part-time in a private business.

Helping fund a college-age child    

1. Create a scholarship charitable remainder trust;
2. Lend the child money using an Interest-free demand loan; or 
3. Hire the child part-time in a private business. 

Client wants to give temporary access to funds

1. Create a long-term Reversionary Trust; or
2. Use Interest-free loans. 

Caregiving

Allocating funds to take care of an individual with special needs

1. Use a third-party Special Needs Trust for handicapped family member, other than a Spouse; or
2. Use a testamentary Special Needs Trust for a surviving Spouse,

Elderly parent needs support for the rest of their life

1. Use a Charitable Remainder Trust; or
2. Use a Private Annuity.

General Estate Issues

Avoiding Taxes on Significant Capital Gains

1. Place assets into a Charitable Remainder Trust Before they are Sold;
2. Place realized capital gains into a Qualified Opportunity Zone Fund; or
3. Place Realized Capital Gains into a Grantor Type Charitable Lead Trust.

Client wants to give away undeveloped land, but fears later need

1. Use a Trust from which the donor may receive discretionary distributions; or
2. Use a Grantor Retained Income Trust.

Client wants to transfer a residence but maintain lifetime use

1. Gift the property and take a leaseback; 
2. Gift the property with use at sufferance;
3. Sell a remainder interest in the property; 
4. Use a Split purchase; or
5. Use a Qualified Personal Residence Trust.

Client wants to gift large asset to avoid tax

1. Make gifts of partial interests in the property, or shares in an LLC, below the annual exclusion;
2. Make an installment gift;
3. Use a Grantor Retained Annuity Trust to give away future appreciation; 
4. Use a Grantor Retained Income Trust for illiquid tangible assets and undeveloped real estate; 
5. Use a Charitable Lead Trust with remainder to children; or
6. Use a sale to an Intentionally Defective Income Trust and note back.

Client wants to transfer property but maintain income

1. Use a Grantor Retained Annuity Trust;
2. Use a private annuity;
3. Use an Installment sale;
4. Sell a remainder interest;
5. Use a split purchase;
6. Recapitalize a C corporation;
7. Recapitalize limited partnership; or
8. Use a Charitable Remainder Trust.

Client wants to give away shares of an expanding business

1. Make a gift of recapitalized preferred stock in a C Corporation; or  
2. Make a gift of recapitalized limited partnership interests.

Client plans to sell assets for a family member's benefit but doesn't want to be taxed on the sale

1. Make an outright gift of property before sale; or 
2. Use a Charitable Remainder Trust where the family member is the income beneficiary.

Client has an illiquid estate

1. Make a gift of illiquid assets;
2. Make a gift of life insurance in trust;
3. Make a gift, but donee pays the gift tax;
4. Use an intrafamily sale;
5. Sell a remainder interest in illiquid assets (artwork, residence, etc.); or
6. Use a Charitable Lead Annuity Trust.

This is not a comprehensive list, but it  does give you a start in thinking about how to solve some of life’s taxing problems. 

Matthew Erskine is Managing Partner at Erskine & Erskine.