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TCJA 2017 Boosts Joint Spousal LLC as Estate Planning Solution

TCJA 2017 Boosts Joint Spousal LLC as Estate Planning Solution

By    |   Monday, 20 August 2018 08:22 AM

The Tax Cut and Jobs Act of 2017 terminated estate tax as the primary goal of estate planning for nearly all family or closely-held businesses.

Few estates holding family or closely held businesses are expected to be liable for federal estate tax. With the tax credit raised for a married couple to $22.4 million, it is commonly understood that roughly 99% of these estates will be free from estate tax.

The question that many estate planners now face from business owner clients is, why do I need estate planning complications when tax is not a concern?

The answer is that with the exposure to estate taken out of the planning puzzle, estate plan strategies can hone in on the estate problems that are meaningful.

Think about, for example, a husband and wife owning an interest in a family business. As a practical matter, a plan needs to be in place in case one of them, or even both, is disabled or dies

Before TCJA of 2017, a typical estate planning arrangement for a married couple focused on maximizing the allowable credit against the estate tax utilize two revocable trusts. Then,

Both trusts contained similar terms requiring, in turn, two separate sub-trusts.

One sub-trust was funded with the maximum tax credit allowable against the estate tax, and everything else went into a marital deduction trust.

But relieved of the estate tax exposure, the trusts can be customized more closely to meet the needs of individuals rather than the government.

Individuals want to focus on the protection of their ongoing operating business, real estate interests, or even investments in securities. Government just wants money, now.  

It is always a concern on whether the person or trust company appointed to be a trustee can also run a business or properly manage investments. Obviously, dividing these roles creates an inherent check and balance system.

Life is messy, and everyone has complications in their lives.

Many people, likely most, have blended marriages involving second—or more—marriages with children.

Besides deciding who get what and when, the kids may not be old enough, mature enough, have special needs for physical or mental reasons, or other dysfunctionalities which are problematic in families.

Divorce is always a risk. The accumulation of wealth over the many years of the parents’ hard work can be lost in a child’s divorce.

Then there is need for both the parents for themselves and the heirs to protect the assets from legal liability and judgments. 

With the TCJA of 2017 raising the estate tax exemption, it gives some impetus for wealth planners to consider using a joint spousal trust as an alternative to the two-trust strategy.  

Regardless, the trust, or trusts, can be a member of a limited liability company holding the estate assets.

Pragmatically, this allows for the separate appointment of a trustee as separate from the LLC managing the estate assets.

The ownership of the LLC membership interests remains legally in the Trust. The Trustee receives the LLC distributions and dutifully allocates the appropriate share to the beneficiaries.

Management of the family business, real estate, investment securities and other assets, can then be controlled by a competent LLC manager.

And, during life the parents can retain full control.

If they become disabled or die, this planning structure allows the trust to provide an efficient means of transferring wealth intergenerationally, for beneficial tax elections and valuation discounts.

Importantly, the LLC serves as the legal shield to protect assets from creditors, divorce, or other wealth predators.

When thinking about utilizing an up-to-date estate plan for a married couple, a strategy using the joint spousal LLC should be a top consideration. 

Denis Kleinfeld is known as a strategic tax and wealth protection lawyer, widely published author and creative teacher.

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When thinking about utilizing an up-to-date estate plan for a married couple, a strategy using the joint spousal LLC should be a top consideration. 
tcja, joint spousal, estate, planning
Monday, 20 August 2018 08:22 AM
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