Advanced Estate Planning

You've worked hard your whole life to provide for your family and make your loved ones more secure.  Without advanced estate planning strategies, much of the significant assets you have accumulated may end up with the IRS and state taxing authorities.

Our firm regularly assists affluent families with such sophisticated planning strategies as an IRA, Special Needs Trust and Irrevocable Life Insurance Trust and a wide range of charitable gifting techniques to reduce Federal Estate Taxes, Gift Taxes and Generation Skipping Transfer Taxes. 

IRA Trust

A Stand-Alone IRA Trust is a great tool for people with relatively large retirement accounts to ensure that their beneficiaries will reduce their tax obligations and maximize the deferred tax advantages of retirement accounts over the expected life of each beneficiary.  If properly planned and executed, the IRS allows beneficiaries of certain retirement accounts to continue to grow their inherited retirement account tax free until it is eventually withdrawn.  This is called stretching-out your inherited IRA and the tax-free growth can be substantial. 

All too often, beneficiaries take a lump-sum withdrawal of an inherited retirement account.  In addition to losing the “stretch-out”, such a withdrawal also makes the retirement account subject to ordinary income tax.  Most of the tax on that withdrawal will likely be at the highest tax bracket (currently 39.6%).  This results in a “hidden” estate tax that even highly educated beneficiaries fail to identify until it is too late.   

Failing to stretch-out inherited retirement accounts by beneficiaries has two side-effects: 1.) a nearly 40% tax the year that it is withdrawn and 2.) a loss of the deferred tax growth over the expected life of the beneficiary.  If poorly planned, a $300,000 inherited IRA can result in an $180,000 inheritance to your child.  If properly planned, that same $300,000 inherited IRA can grow to a value over $3 million.   A Stand-Alone IRA Trust will provide the protection necessary to ensure that the value of your retirement assets are maximized for your beneficiaries.

Stand-alone Special Needs Trust

Special Needs Trusts (SNT) are created to provide assets to a person with special needs in a manner that preserves their eligibility for government assistance.  Hence, a trustee of a SNT will be responsible for managing distributions of assets to the person with special needs in a manner that does adversely impact eligibility for government assistance.

 There are two types of Special Needs Trusts: 1.) a Testamentary Special Needs Trust and 2.) a Stand-alone Special Needs Trust.  A Testamentary SNT is established at the death of the person creating the trust pursuant to his Will or Revocable Living Trust.  In contrast, A Stand-alone SNT is established while the person funding the trust is still alive.  Thus, with a Stand-alone SNT, the person with special needs will receive assets sooner than with a Testamentary SNT.  Further, multiple people may contribute to a single Stand-alone SNT.  Therefore, if you believe that a person with special needs would immediately benefit from receiving assets from one or more people, then it makes sense to consider a Stand-alone SNT in addition to a Testamentary SNT.  

Irrevocable Life Insurance Trusts

There is a common misconception that life insurance proceeds are not subject to Federal Estate Taxes.  While the proceeds are received by your loved ones free of any income taxes, they are countable as part of your taxable estate and therefore your loved ones can lose about half of its value to estate taxes. 

An Irrevocable Life Insurance Trust is created specifically for the purpose of owning your life insurance policy. A properly established and administered trust holds the policy outside of your estate and keeps the proceeds from being taxable to your estate. The proceeds from the insurance policy can then be used to provide your estate with the liquidity to pay estate taxes, pay off debts, pay final expenses and provide income to a surviving spouse or children.  The ILIT will be the policy owner and beneficiary.  Once your trust is established, you use your annual gift tax exclusion to make cash gifts to your trust. Your beneficiaries forgo the present gift (in lieu of the future proceeds) and the trustee uses the remaining gift to pay the premium on the life insurance policy.

There are many options available when setting up an ILIT.  For example, ILITs can be structured to provide income to a surviving spouse with the remainder going to your children from a previous marriage.  You can also provide for distribution of a limited amount of the insurance proceeds over a period of time to a financially irresponsible child.

Our firm is dedicated to helping clients make educated, informed decisions about their assets and will work with you and your team of financial advisors and CPAs to implement a highly sophisticated and effective estate plan that allows for the maximum transfer of assets to your loved ones.

McClellan Legal LLC is located in Kennett Square and serves clients throughout the areas of Avondale, Chadds Ford, Coatesville, Downingtown, Landenberg, Oxford, Phoenixville, Pottstown, West Chester, & West Grove.

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113 South Broad Street, Kennett Square, PA 19348
| Phone: 610-444-5552

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