Creating Tax Mitigation, Diversification, and Leverage in Grantor Trusts with Life Insurance
Posted on 01.20.16
It is our goal as tax and accounting advisors to go beyond traditional tax preparation and identify tax savings and planning opportunities for each of our clients. With that in mind, we are sharing an article by Vernon Holleman and Eric Hieber, principals at BCG Companies. Vernon and Eric share their insights on reducing individual taxes by diversifying grantor trusts with life insurance. We hope you find this article informative and if you would like to learn more about this option please contact your Keiter representative or firstname.lastname@example.org | 804.747.0000.
Rationale for Planning
After solid return years in the stock market in both 2013 and 2014, along with two filed tax returns where Grantors viewed the actual taxes – not just an estimated number – that they sent to the IRS, as well as a re-hydration period following the mad dash that occurred at the end of 2012 – Grantors are now ready to focus on how to reduce the taxes they are personally paying in their Grantor Trusts, even if 2015 yielded modest or negative returns. The re-hydration period also included a settling of Trust assets by swap for those Trusts where Grantor made gifts of certain assets at the end of 2012 and traded them for other assets since that time.
Although not a surprise to most, due to good estate counsel, the tax amounts paid were significant, especially for those who maximized the gift ceiling. The taxes paid in 2014 and 2015 have the attention of Grantors. Although not unreasonable in theory, the argument that taxes paid by Grantors are an additional estate planning benefit because they get dollars out of the taxable estate is, in fact, a rationalization for the uncreative planner. Simply put, Grantors deserve exposure to tax mitigation alternatives. Advisors and planners need to be pro-active in helping clients explore opportunities for tax reduction and other goal achieving planning benefits, such as increasing their charitable giving. Diversifying Grantor Trust assets with life insurance is one such strategy. BCG Companies:
In 1988, BCG was founded on a simple premise: Serve the specialized insurance needs of affluent families and corporations.
Vernon Wilson Holleman, III, CLU, Principal
Vernon is a principal with BCG Holleman. BCG Holleman was formed in April of 2013 with a merger of The Holleman Companies of Chevy Chase, MD and the BCG Companies, both member firms of M Financial Group, one of the nation's most successful insurance buying consortium. Prior to the merger of these firms, Vernon joined The Holleman Companies, his father's life insurance firm, in 1994 and became president of the firm in 2001.
Eric Hieber, Principal
Eric oversees the case design team and is responsible for managing client relationships in both the wealth transfer/estate planning and nonqualified executive benefit planning markets. In addition, he works directly with our clients and their advisors to design, implement and administer customized plans to meet their specific needs.