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Important Considerations in Family and Estate Tax Planning


Perhaps the most important considerations in family and estate tax planning are the needs of the family, and the grantors’ desires and objectives. These needs, desires, and objectives must be systematically thought out, thoroughly articulated, accurately communicated to advisors, and meticulously implemented. To achieve its mark, an estate plan must be reviewed periodically to consider life events and law changes that may require amendments to one or more of the planning documents. All of these must be accomplished with an eye toward minimizing transaction costs, such as administration, probate, and property transfer.

Resources available to meet predefined needs and policies to protect those resources from known, unanticipated, or unexpected threats are also important considerations. Family members are not equally able to manage a share of each family asset or liability. Some family members have no desire to inherit certain assets, such as a family business. Family members with special needs such as mental or physical challenges, divorce, blended families, or irresponsibility require unique solutions. Charitable inclinations and available resources to fund that philanthropy must be considered. Closely held business ventures, and ownership of property in multiple states may require different planning. Lifetime trusts must be funded timely and appropriately. The list goes on.

From a tax perspective, grantors should avail themselves of transfer-tax free, lifetime giving opportunities to minimize death taxes. Directly funding education or medical expenses of other family members do not reduce a grantor’s ability to make annual exclusion gifts. Advance funding of current or future educational needs may also minimize estate taxes in the event of premature death. Lifetime gifts of appreciating property may be appropriate.

Estate liquidity is but one more consideration. An expected estate tax liability can often be funded with life insurance. Properly planned, the insurance proceeds can remain free of the decedent’s taxable estate.

Individuals must be encouraged to carefully articulate their desires. Many clients going through this planning process are of the opinion that the government dictates the recipients of their bounty. That is not the case with a planned estate. Non-tax needs and objectives take precedence over tax considerations. Once the non-tax goals are identified, it becomes the role of legal and tax advisors to develop strategies to meet those goals in the most tax-advantageous manner.


©2011 Ronnie C. McClure, PhD, CPA