When you’ve worked for years to ensure that your loved ones are provided for, you don’t want your estate or your loved ones saddled with unnecessary taxes.
Here are two estate planning tools that can help affluent families in Louisiana minimize taxes and maximize assets.
Qualified Personal Residence Trust
If you choose to create a Qualified Personal Residence Trust (QPRT), you can transfer the title of your primary residence or your vacation home — or both — to the trust and make your family members the beneficiaries. The title to the property is transferred at a significant discount, and the value of the home is frozen for the purposes of the estate tax.
Meanwhile, you can continue living in the home for a set number of years. If you are still living in the home at the end of the set period, the home — along with any appreciation in value since you created the QPRT — will pass to the trust beneficiaries with no additional gift or estate taxes.
Also, you can choose to keep living in the home after the set period and then pay rent to the trust beneficiary. This strategy keeps the residence out of your estate and reduces the value of your taxable estate.
However, if you die before the end of the specified period, the value of the home will be included in the estate and subject to the estate tax.
Irrevocable Life Insurance Trust
Your loved ones can receive the proceeds of a life insurance policy without taking on the burden of additional income tax. However, the proceeds of a life insurance policy may be subject to the federal estate tax, which can cut into a significant portion of the policy’s value.
Creating an Irrevocable Life Insurance Trust (ILIT) allows for the policy to be held outside of your estate, with the proceeds not being subject to the estate tax.
Instead, the proceeds can be used to cover a variety of end-of-life expenses and provide for your surviving spouse or children. To fund the trust, you can make cash gifts, which fall under the annual gift tax exclusion.
Ballay, Braud & Colon, PLC, is a Belle Chasse law firm providing estate planning services throughout Greater New Orleans. For more on these matters, please see our overview of succession, wills and trusts.