Tax-Saving Schemes for Your Estate Plan

A common estate planning goal is to reduce taxes and thereby pass more money along to the beneficiaries of the estate. A recent article discusses several different estate planning devices that may help you to save taxes on your estate.

The article first discusses how family business owners can reduce estate taxes. If you have a family owned business that you would like to transfer to your children, selling the business to your children outright is one of the least tax-effective ways through which to effectuate this transfer.

Instead, the article suggests using an Intentionally Defective Trust (“IDT”). Through an IDT, the creator can transfer the business to his or her children free of taxes. For every $1 million of the business price, an IDT will save the business owners an average of $195,000.

For those who do not have a family business, the article discusses the use of Family Limited Partnerships (“FLIP”). A FLIP is a tax-saving device for assets other than a business, residence, or IRA. Such assets include publicly traded stocks, bonds, and real estate. A properly drafted FLIP allows the creator to control the assets within it for the duration of his or her life, protect the assets from creditors, and reduce the taxes on the asset.

In New Jersey, however, we must use a close relative of the FLIP called the FLLC or Family Limited Liability Company. Many of the same rules and opportunities apply to the FLLC, but reasons due to a court case finding, we must use the LLC version to be in compliance.