Estate Planning Techniques for the Single Testator
Typically when we talk about estate planning, we address the needs of a couple or a family. However, there are many people who choose not to marry or who don’t have any children.
The expected estate plan for a single client is an outright distribution will along with a power of attorney and a living will.
If the client does not have a taxable estate, this plan should suffice to conclude the final wishes. Unfortunately, a single person cannot expect the same tax-saving accomplishments as a married couple because the same tax-saving opportunities offered to married couples are not offered to single people.
There are some more sophisticated estate planning techniques designed for gifting assets in a creative way that will result in tax savings for the single testator.
One example is the Qualified Personal Residence Trust (QPRT), which is a trust-gifting technique. By placing the primary residence and/or vacation home in a QPRT, the annual gift exclusion (currently $14,000) is not fully utilized. Usually, as soon as the deed is transferred, a gift has been created. A QPRT is not considered to be a gift right away.
With a QPRT, the amount of the gift will vary depending on the term of the trust, therefore the client will have to use a portion of the gift tax exclusion, but it will not be due until the term of the trust expires. At that time, a qualified appraiser will have to conduct an appraisal and a gift tax return will have to be filed to report the portion of the exclusion that has been used.
Overall, with the establishment of a QPRT, the primary estate and its appreciation value is removed from the estate. The IRS permits you to have no more than two (2) QPRT’s and only for your primary residence and a vacation home used by the grantor.
The QPRT may only contain the residence(s) and the grantor is responsible for paying real estate taxes during the term of the trust.
The grantor can live in the trust property for the term of the trust and even after it expires, provided he pays fair market value rent to the trust beneficiaries. The grantor can only accomplish the tax savings if he survives the term of the trust.
If the grantor dies before the trust term expires, the interest will be added to the estate as if the trust was never created. For the single testator, this technique might be worth the risk.
Information contained in this article is not intended to be legal advice nor applicable to all situations. For legal assistance, contact an attorney in your state of residence. You can visit Arleen’s website at arleenrichards-law.info.
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