Defective by design — Weighing the ins and outs of income defective and estate defective trusts

For decades estate planning has focused on avoiding or minimizing federal estate, gift and generation-skipping transfer taxes. But now that the federal estate tax exemption has climbed to $3.5 million, fewer people are subject to federal estate tax, and income tax has taken on a more significant role. If you’re among those for whom estate tax has become less of a concern, it’s a good idea to review your situation and consider such estate planning strategies as income defective trusts and estate defective trusts.
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Don’t let your Crummey trust crumble

The annual gift tax exclusion lets you remove a substantial amount of wealth from your taxable estate without tapping any of your $1 million lifetime gift tax or $3.5 million estate tax exemptions. There’s just one catch: The annual exclusion applies only to gifts of a present interest — that is, the recipient must have all immediate rights to the use, possession and enjoyment of the gifted property or of the income from such property. But gifts to a trust are, by definition, gifts of future interests. So how do you make annual exclusion gifts to a trust? One way is to provide trust beneficiaries with Crummey withdrawal rights. This article discusses such trusts, including the “5&5 rule,” while a sidebar offers dos and don’ts in regard to protecting a Crummey trust from IRS challenge.
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Bankruptcy and your estate plan — When assets are transferred is key

Some estate planning tools, such as FLPs and FLLCs, provide some peace of mind that your assets will be there when your family needs them. But don’t be lulled into a false sense of security. Asset protection is never absolute, particularly when bankruptcy is involved. To minimize your risk, it’s important to consider bankruptcy issues as you plan your estate. This article explains how you can set up asset protection trusts and other vehicles in a way that keeps them from being disqualified as fraudulent or preferential transfers.
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Estate planning pitfall — You haven’t reviewed your estate plan since your divorce

A divorce settlement typically takes care of issues such as jointly owned real estate, bank accounts and other property. But, if you’re divorced, is your spouse still a beneficiary of any life insurance policies, retirement accounts or irrevocable trusts? Is he or she still an agent for your health care issues, or have power of attorney for financial matters? These are reasons why you may need to review your estate plan.
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