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Every family should consider the impact of taxes on their assets when making important decisions. High net-worth individuals and families, however, know they should especially consider relevant tax laws before making big estate plan or asset management changes. But staying on top of the ever-changing task landscape can be tricky. Even small changes year over year can lay the foundation for tax-saving opportunities—or pitfalls. A skilled estate planning attorney can help clients with substantial estates plan for these changes and nuances while considering the potential impact of laws on the value of the estate.

For example, the IRS announced it will raise the estate and gift tax exclusion limit in 2023. Individuals can gift up to $12.92 million to their heirs and beneficiaries, an increase from $12.06 million in 2022. Combined limits for married couples will be nearly $26 million in 2023.

Tax-free gifts also see a higher annual limit for 2023. Individuals can give away $17,000 per recipient without reducing the lifetime exclusion, a $1,000 increase from $16,000 in 2022. These adjustments are a routine part of the IRS’s annual inflation adjustments.

Many people hear “probate” and immediately think of hassle, expense, and delays. While many estate planning fears are unfounded, probate proceedings can be just as daunting as they seem. Individuals may seek to avoid probate and make the process easier on their families and loved ones.

One way to avoid probate is through trusts, which are similar to wills but take effect while the benefactor or trustee is still alive. A living trust can avoid probate through the following steps: an individual makes a trust document and names a trustee that will take effect after the individual’s death. Before death, the individual creating the trust is the trustee, and will transfer ownership of the property in question to the trust. Upon your passing, the trustee you’ve named will be able to transfer the property to the trust’s beneficiaries and avoid probate.

But trusts are not the only way to avoid probate in Colorado. Read on for other mechanisms you can use to avoid probate. An experienced estate planning attorney can help determine whether any of these tools will be useful to you and your family to fit your unique needs.

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Contemplating post-life options is an essential part of any Colorado estate plan. While addressing these issues can elicit discomfort, establishing a solid and legally sound plan also provides peace and comfort to the planner and their loved ones. Individuals planning for the disposition and transfer of their assets must address their funeral and burial arrangements.

Generally, burials or cremation are the two leading options for the disposition of remains. In many situations, religion, family history, and finances are some of the foremost considerations in selecting one’s final resting place.

In many states, the only options are burial, cremation, and donation. However, Colorado is one of the first states to permit a third environmentally conscious option: human composting.

What is Human Composting?

Human composting, sometimes known as natural organic reduction, refers to the accelerated decomposition of human remains by organic processes. In essence, human composting converts the human body into soil with the intent of fertilizing the environment.

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The probate process in many states can be complicated and stressful for the families of individuals who have recently passed. Thankfully, a skilled estate planning attorney can do much to help individuals and families avoid these headaches, including setting up trusts to keep some assets out of probate and drafting clear wills and other beneficiary designations. Still, many individuals do not have an estate plan or fail to have an updated and comprehensive estate plan. Unfortunately, this lack of foresight can enable disputes, even if you believe your assets to be clearly designated. Even families that get along harmoniously can act out of character in the presence of grief and finances.

According to a recent article, these family disputes are unfortunately all too common. An adult child of divorced parents recently posted to a message board that their father is ill and would likely pass soon. The adult child’s mother, who divorced from the child’s father over 20 years ago, when the child was just a teenager, has told the child she believes she is owed a stake in her ex-husband’s assets. The child stands to inherit enough money to help purchase a home, but the mother is asking for a piece of the inheritance because she asserts she did not receive enough money in the separation agreement.

Fortunately, divorce settlements are difficult to reopen in the United Kingdom, where the writer is located. And if their father has a well-drafted and clear last will and testament and estate plan, it is unlikely the mother’s claim holds water. This story, however, goes to show one of many ways families can squabble over inheritances when the time comes.

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Many clients, including high-net-worth individuals, often worry about the impact of taxes on their estates. Tax laws change regularly with the political landscape, and frequent updates to tax shield strategies should be considered. The 2017 Tax Cuts and Jobs Act protected estates with a number of tools to shield and exempt against taxation. However, this law sunsets, or expires, at the end of 2025. One tool enabled by the law is the creation of a Spousal Lifetime Access Trust, or SLAT, designed to transfer assets between spouses in a way that protects against tax liability. Read on for more on SLATs and how you can take advantage of these estate planning tools now.

What is a Spousal Lifetime Access Trust?

A Spousal Lifetime Access Trust (SLAT) is an irrevocable trust, which means the grantor or creator of the trust cannot change or end the trust after creating it. In a SLAT, one spouse—the “donor spouse”—creates the trust for the benefit of the other spouse, or “beneficiary spouse.” The spouse does this by using their gift tax exemption, which is an amount that varies each year, to fund the trust with a gift. The property or assets placed in the trust are then accessible by the beneficiary, though multiple structures exist that can allow children or grandchildren to benefit. The funding of the trust up to the gift tax exemption cap allows the trust to avoid probate and estate taxes, preserving value for the grantor’s family and beneficiary.

Protecting Your SLAT

In 2022, the maximum possible gift tax exemption is $12,060,000. This means a spouse could fund a SLAT in this amount without that portion of their estate is taxable. The assets should not be jointly owned by both spouses. If the assets appreciate in value, that appreciation is also considered outside of your taxable estate. The SLAT assets could also continue to grow tax-free if not distributed or withdrawn by the beneficiary spouse, which could then go to the next generation if also named as current or remainder beneficiaries.

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Estate planning can seem complicated at any income level. Considering your assets, thinking through how you want those assets distributed, choosing guardians for your children, and selecting executors, trustees, and other fiduciaries can all take time and money, especially when done without the guidance of a skilled estate planning attorney. For high net worth individuals, though, this can be even more difficult with more assets of varied type to consider. Another issue high net worth individuals, who generally have more than $1 million in liquid assets, have to carefully consider is the impact of taxes on their estates. Taxes can limit the amount you ultimately bequeath to your beneficiaries. An attorney will know the ever-changing wealth and estate tax landscape and help you avoid taking a big hit when the time comes.

Wealth Transfer Taxes

In addition to the more commonly known income taxes, there are three types of taxes to consider when estate planning. These types of taxes are collectively known as wealth transfer taxes and include gift taxes, estate taxes, and generation-skipping taxes. These can all be minimized or avoided through creative planning and the use of trusts.

Gift taxes are taxes paid by a person who transfers assets to another person without receiving something in return and are quite common. There are federal gift taxes that range from 18% to 40%, depending on the amount of the gift, and some states impose gift taxes as well.

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For many people, estate planning can seem intimidating but is ultimately relatively simple. Everyone needs an estate plan, but not everyone needs special arrangements to save on estate taxes or plan for business succession. Individuals and families who do need these more complex strategies may not know where to start. Below are a few advanced estate planning strategies. Before deciding a strategy is right for you, contact an experienced estate planning attorney to discuss your options and your unique situation. An attorney can recommend the best course of action and make sure you understand every option on the table.

Generation-Skipping, Dynasty, and Grandchildren’s Trusts

Many transfers of wealth between family members can incur taxes that should be considered. However, there are several generation-skipping trusts and strategies that can be used to distribute assets to the younger generation without depleting the estate with hefty federal and state taxes. A generation-skipping trust, for example, allows individuals to leave $1 million to their grandchildren, great-grandchildren and beyond without incurring a transfer tax. The amount will remain available to the individual’s spouse and the individual’s children as long as they are alive. A dynasty trust is similar to a generation-skipping trust, but lasts for over two generations. Finally, individuals can leave up to $10,000 each year to any other individuals, including grandchildren and great-grandchildren, without incurring gift taxes or other wealth transfer taxes. These gifts can be made to a trust to ensure younger generations are not left with large sums of money they cannot yet manage.

Special Arrangements for Businesses

Business owners may also take advantage of more advanced estate planning strategies. For example, business owners may begin to give their business interests to their children or beneficiaries to avoid estate taxes on the business. A way to do this without ceding control of the business is to issue non-voting stock to family members.

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Less than 46% of Americans surveyed by Gallup in 2021 had a will. This number is shocking—not having estate planning documents can cost your loved ones thousands in legal fees, not to mention family strife and arguments. Or, if you and your family are some of the 54% with plans in place for the future, when was the last time you revisited and updated your estate planning documents? Outdated documents may also cost your family in time and money.

A person without—or with outdated—estate planning documents may not be fully protected. Tax season is a great time to revisit existing estate plans or think about establishing new ones. Why? Tax season serves as a natural (and government-imposed) check on your assets and liabilities. Changes in yearly earnings or the sale and acquisition of significant assets can have big tax implications and big implications on what you may want to reflect in your estate planning documents.

Changes to Watch Out For

In 2022, many individuals are finding that investing as a hobby is easier than ever. Investments can fluctuate in value, and estate planning documents should account for big windfalls or substantial losses. In the same vein, cryptocurrencies are beginning to become a more mainstream investment for many individuals. However, cryptocurrencies require private keys to access. Estate plans should include instructions for accessing cryptocurrency portfolios to avoid losing assets to a misplaced password.

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The recently passed Inflation Reduction Act includes several initiatives that provide tax breaks and rebates for households that take steps to improve their energy efficiency. Consumers who make energy efficient home upgrades and purchases may qualify for up to $10,000 or more in these benefits, in addition to other benefits such as lower electricity bills and a smaller carbon footprint.

Tax Credits for Homeowners

Homeowners could get up to a 30% tax credit for installing solar panels or other renewable energy equipment, such as windmills. Costs incurred in installation from 2022 through 2032 qualify for a 30% tax credit. The credit falls in later years, dropping to 26% in 2033 and 22% in 2034. This extends a previous tax credit set to expire in 2023 and, starting in 2023, includes battery storage technology so homeowners can pair solar panels with storage.

Other home efficiency projects, such as energy-efficient windows and water heaters, also qualify for a 30% tax credit toward installation costs. The cap on these savings is $1,200 a year, though some projects can qualify for higher caps. The installations must meet certain efficiency criteria to qualify, and some specific items have individual caps. The credit also covers the cost of a home energy audit (up to $150) and an electrical panel upgrade (up to $600).

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Estate planners are increasingly using trust protector provisions in trust documents. While these provisions can be flexible and preserve the intent of a trust’s grantor, they also come with risks and complexities. A panel of the trust and estate planning attorneys at Braverman Law Group are hosting a CLE/CPE course to provide a practical guide to structuring trust protector provisions and discuss best practices.

What Are Trust Protector Provisions?

Trust protectors are third parties given power within a trust provision to make adjustments to the terms of trusts in a way that complies with the intent of the trust’s grantor, or the person establishing the trust. Trust protectors provide an extra level of flexibility not available in a traditional trust. These are especially useful in long-term trusts when the circumstances surrounding the parties to a trust may change substantially. A trust protector helps protect the spirit and intent of the trust when changes would not be otherwise possible.

What Are the Risks?

While trust protector provisions allow for more flexibility, they can be complex and subject to abuse. Different states and jurisdictions have varying laws surrounding the power of a trust protector and the structure of those powers. For example, a range of actions can be taken by a trust protector, and different jurisdictions limit those actions in different ways. Some allow trust protectors to modify trust terms, while others allow trust protectors to oversee the actions of the trustee. Trust protectors can sometimes make elective distributions, change the trust’s situs, or even replace the trustee. Trust agreements can identify the trust protector’s powers and designate the fiduciary extent, but estate planning counsel must fully understand the breadth and scope of the risks and consequences.

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