Featuring Panelists:
Cory Parnell, Principal at BGM
Michael Andrews, Estate & Trust Planning Expert, BGM
Rachel Dahl, Partner at DeWitt LLP
Leonetta Rence, Trust & Estate Advisor, Cornerstone Trust
Insights from Part 2 of the Estate Planning Webinar Series
As estate tax laws face pivotal changes, financial and legal experts are urging individuals—especially high-net-worth families—to act swiftly and strategically. In this second installment of their estate planning webinar series, Cory Parnell, Rachel Dahl, Leonetta Rence, Michael Andrews explored next-level planning strategies that build on the foundational discussion from the first webinar.
Part 1 focused on explaining the current state of estate tax law and the mechanics of revocable living trusts. This follow-up session dove deeper, unpacking the mechanics of irrevocable trusts, the implications of upcoming tax legislation, and specific techniques like Spousal Lifetime Access Trusts (SLATs), charitable trusts, and life insurance strategies—all aimed at helping families reduce tax burdens and preserve generational wealth.
Understanding the Legislative Backdrop: Time-Sensitive Opportunities
Michael Andrews opened with a high-level overview of the proposed “Big Beautiful Bill,” which could raise the lifetime estate, gift, and GST tax exemption to $15 million per person. Currently, that exemption stands at $13.99 million, but if the bill fails to pass, it is expected to sunset on December 31, 2025, reverting to an estimated $6.5–$8 million.
With the House having passed the bill and a self-imposed Senate deadline of July 4, the clock is ticking. Families need to plan under the assumption that the higher exemption may soon vanish.
Key deadlines:
- October 15: Legal documents should be finalized and reviewed.
- October 31: Execution of legal documents.
- November 15: Funding of trusts must begin—especially for assets like real estate or closely held businesses that require appraisals.
SLATs Explained: Leveraging a Powerful but Complex Tool
One of the session’s focal points was the Spousal Lifetime Access Trust (SLAT), a popular irrevocable trust structure for married couples who want to leverage today’s high exemptions without completely losing access to gifted assets.
How SLATs Work:
- One spouse (the donor spouse) gifts assets into a trust for the benefit of the other (beneficiary spouse).
- Assets can include cash, real estate, securities, business interests, or life insurance.
- Though the assets are no longer owned by the donor spouse, the couple retains indirect access via the beneficiary spouse.
Benefits:
- Removes appreciating assets from the taxable estate.
- Takes advantage of today’s higher exemptions before they potentially drop.
- Offers a level of financial comfort since the spouse can still receive distributions.
Risks and Considerations:
- Divorce or death of the beneficiary spouse can cut off access to the trust.
- The trust must be carefully drafted to avoid “reciprocal trust” issues or loss of control.
- The donor spouse must file a gift tax return (Form 709) for any contributions that exceed the annual exclusion.
Rachel Dahl emphasized that SLATs should include specific clauses to handle divorce, successor beneficiaries, and the option to appoint an independent trustee for increased flexibility and fiduciary oversight.
Trustee Structures: Why Independence Matters
Leonetta Rence underscored a crucial operational aspect of SLATs: trustee selection. When the beneficiary spouse acts as the sole trustee, distributions are restricted to the IRS-sanctioned HEMS standards (health, education, maintenance, and support). However, an independent trustee has greater discretion, potentially expanding the trust’s usefulness.
Other trustee-related insights:
- Include co-trustee language to prepare for incapacity or death of the beneficiary trustee.
- Consider adding “5 by 5” withdrawal powers (5% or $5,000 annually) to allow limited access to principal.
Beyond SLATs: Alternative Irrevocable Trust Strategies
The panel also explored other advanced trust structures to complement or substitute SLATs, depending on a client’s goals, family situation, and tax position.
1. Irrevocable Life Insurance Trusts (ILITs)
As Leonetta Rence explained, these trusts:
- Own life insurance policies, removing them from the estate.
- Use Crummey powers to qualify premium gifts for the annual exclusion.
- Can redirect excess dividends to charity (in creative structures where philanthropic intent aligns with legacy planning).
Failure to send proper Crummey notices can jeopardize the trust's tax advantages. Rachel and Michael shared cases where improperly executed notices led to inclusion of trust assets in the taxable estate—highlighting the need for disciplined documentation.
2. Charitable Remainder Trusts (CRTs)
Ideal for those seeking an income stream and a tax deduction:
- Donors receive a percentage of trust assets annually.
- Remainder passes to a charity at the end of the trust term or upon death.
- Useful for income tax deferral and estate tax reduction.
3. Charitable Lead Trusts (CLTs)
Opposite of CRTs:
- Charities receive income first.
- Family beneficiaries receive the remainder at the end of the trust term.
- Can be structured as grantor (taxable to the donor) or non-grantor (independently taxed).
Modeling Tax Outcomes: Gift Timing Matters
Michael Andrews shared compelling scenarios using spreadsheets to model how different levels of gifting before sunset impact estate tax exposure. The key insight: partial gifting (e.g., $6 million) may provide little to no benefit unless you exceed the pre-TCJA base exemption.
Example:
- No gifts → $7.2M estate tax
- $6M gift → Still $7.2M estate tax
- $11M gift → $5.6M estate tax
- $13.99M full gift → $4.4M estate tax
Conclusion: To reap the tax savings, you must “burn through” the extra exemption above the old limit (approx. $7M).
State-Level Estate Taxes: The Hidden Landmine
Rachel Dahl pointed out that 18 states still impose estate or inheritance taxes. In Minnesota, for example:
- The state estate tax exemption is just $3 million.
- Portability does not exist, making planning between spouses critical.
- Without a proper trust structure, spouses could inadvertently double up their estates and lose one exemption.
IRA & 401(k) Strategies in a SECURE Act World
The team responded to a question about IRAs and the dreaded 10-year withdrawal rule for most non-spouse beneficiaries under the SECURE Act. Potential solutions include:
- Roth conversions during lower-income years
- Charitable rollovers or naming a CRT as the beneficiary
- Stretching distributions via planning between spouses
Final Thoughts: Act Now, Plan Intelligently
With only months remaining until potential legislative change and a surge in demand expected later in the year, the panel strongly urged viewers to act now.
Key Actions:
- Consult your attorney, CPA, and trustee immediately.
- Start drafting trust documents by early fall.
- Have asset valuations and appraisals in motion by November 15.
As Rachel summed it up:
“Don’t let the tax tail wag the marital dog—this is powerful planning, but only if it truly fits your life.”
Contact us to continue the conversation!