Estate Freeze Trust

Freezing the value of assets which may appreciate in the future is another strategy which can be added to your planning. If it is anticipated that certain property will appreciate in value over the years, it often makes sense to include provisions in the Family Savings Trust to minimize or avoid estate taxes on one or more particular assets.

A client in his mid-forties owned publicly traded stock with a value of about $2 million. We calculated that if the value of his portfolio increased at about 7 percent per year, at age seventy-five, the stock would be worth $16 million. The potential estate tax liability was roughly $8 million. Also, of immediate concern, the entire amount of his savings was exposed to lawsuit risks from his business.

To solve both problems, we put the stock into a Family Limited Partnership with the limited partnership interests transferred to a Family Savings Trust with estate freezing provisions. The $2 million value was discounted for tax purposes so that the total amount of the gift was equal to the exemption amount. (After the discount was applied to the $2 million, the gift was valued at $1.3 million. Also note that at this time, Congress is considering limiting the use of valuation discounts on these types of transactions so make sure you or your advisor knows the current state of the law. We post regular updates on this issue on our Web site at www.www.rjmintz.com) The stock was fully shielded from any potential claim, and the entire value of the asset was removed from the client’s estate. If the value of the stock appreciates even slightly, millions of dollars in taxes will be saved for the family.

The same principle would apply to ownership in a start-up company which you believe will increase in value over a number of years. When you start a business, the initial value is generally low. That presents an opportunity to transfer ownership and remove future appreciation from your estate without creating a taxable gift or using a portion of your lifetime exemption. A real estate investment, which has little initial equity but has potential to appreciate, is also a good candidate for an estate freeze.


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