Wednesday, October 26, 2011

Gifting Assets to Trusts as LGBT Estate Planning

Joe of Bucks County has a partner to whom he would like to leave a certain amount of money at his death, but if Partner dies before using the assets Joe would like the money to be used for his Niece. A typical Will gives the money directly to Partner subject to a 15% inheritance tax and the money is available to Partner’s creditors and Partner may leave the money to whomever he wishes, ignoring Joe’s wishes. Lets say Partner respects Joe’s wish, dies a resident of Philadelphia, and in his Will gives the remaining assets to Niece; a second 15% Inheritance Tax occurs.

One Answer: Lawyer could form an Irrevocable Trust into which Joe transfers the assets so that at his death the assets are not his…they are trust’s. Partner can have access to this trust during Joe’s lifetime, or only after Joe’s death, whatever Joe wishes. At Joe’s death there is no Pennsylvania Inheritance Tax, a 15% savings. Plus, should Partner later have creditors, the assets are safe. Further, the trust can require the remaining assets be used for Niece. Joe’s wishes are respected and the 15% tax is avoided.

Monday, October 24, 2011

Estate Planning, Inheritance Tax and Life Insurance for LGBT couples

Estate planning for the LGBT couple in Pennsylvania is complicated by the fact that no matter how long the couple may have lived with one another or be committed to one another, for Inheritance Tax purposes they are considered non-relatives. This means that transfers at death from one person to another are taxed at the highest possible rate; 15%.

One exception to this tax is life insurance. The Pennsylvania Inheritance Tax rate on life insurance passing from on LGBT person to another at death is 0%. Every LGBT estate plan should then carefully examine the assets available to the couple and see if the existing life insurance, or life insurance purchased as part of the plan, can reduce the Inheritance Tax due.

For example, if one partner wishes to leave another partner $100,000 in cash, the surviving partner will only receive $85,000 after the 15% inheritance tax. On the other hand, if the partner left $100,000 from a life insurance policy, the surviving partner receives the entire $100,000. With a small amount of planning, the surviving partner in this example ends up with an additional $15,000.