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3 strategies for transferring assets to your heirs

Posted by admin On December 23rd

3 strategies for transferring assets to your heirs


FamilyIn estate planning, how you own (or “hold title” to) assets and arrange to transfer them after your death can make a big difference to your heirs. Let’s look at three options.




1. Joint tenancy with the right of survivorship

This is one of the simplest ways to hold title to assets. Here the owner of an asset (such as a home) legally agrees to co-own the asset with another party, typically a spouse. When one owner dies, the asset cedes to the surviving owner.

This can be an easy and effective way to pass an asset to an heir. However, jointly held property overrides the provisions of a will or trust, and could thwart your other estate planning strategies. Also, under federal law, any Medicaid applicant who has transferred property for less than full fair market value — such as by naming a loved one as a joint tenant with the right of survivorship — during a “look-back” period (typically five years) may be disqualified.

2. Irrevocable life insurance trust (ILIT)

Although the proceeds of an insurance policy you own on your life are income-tax-free for beneficiaries, the proceeds will be included in your estate. If the policy is owned by an ILIT, however, the proceeds generally won’t be included in your estate. You can fund the trust by depositing cash to cover the policy premiums. These deposits usually are considered taxable gifts, so you may have to file a gift tax return. Depending on how you structure the trust, though, you might be able to apply your annual gift tax exclusion to minimize or eliminate gift tax.

For an ILIT to be effective, you can’t have any “incidents of ownership” in the policy. You can’t, for example, retain the right to change beneficiaries or borrow against the policy’s cash value.

3. Credit shelter trust

Originally, credit shelter trusts were necessary to protect the estate tax exemptions of spouses if their combined estates exceeded the exemptions and couples wanted the surviving spouse to benefit from those assets during his or her lifetime. Now estate tax exemption portability for married couples eliminates the need for a credit shelter trust for that purpose. However, such trusts continue to offer significant benefits, including:

  • Professional asset management,
  • Protection against creditors’ claims,
  • Generation-skipping transfer (GST) tax planning (portability doesn’t apply to the GST tax),
  • Preservation of state exclusion amounts in states that don’t recognize portability, and
  • Preservation of the exemption even if a surviving spouse remarries. (Portability is available only for the most recent spouse’s exemption.)

But perhaps the biggest benefit of a credit shelter trust is the ability to avoid transfer taxes on future appreciation of assets in the trust.

Many solutions

These are only three ways to transfer assets to your heirs. For solutions that fit your unique situation, talk with an estate planning expert.

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