3 Complex Estate Planning Concepts - New York Estate Planning News

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3 Complex Estate Planning Concepts

Many people think that a will is the only estate planning document out there. When they think if estate planning, they assume that a will is all they need.

We've discussed the variety of documents in an estate plan on this blog many times before. While a will is one of the more important estate planning documents, it's not the only one.

We've gone over some of the more common estate planning documents, tools and terms, such as those you're likely to see in a basic estate plan. Now, let's take the time to talk about some of the more obscure ones -- the kinds of terms you're likely to come across in more complex estate plans.

Here are three words you're likely to see in a more complex estate plan for a high-net-worth individual.

The GRAT. The grantor retained annuity trust is a trust that allows for some tremendous tax savings. It's an irrevocable trust that is created for a certain period of time. It pays out an annuity every year and the balance in the trust goes tax-free to the beneficiary, if the trust is drafted right.

Five by Five Power. This is a clause put in many irrevocable trusts. It allows the beneficiary to withdraw the greater of $5,000 or 5% of the trust's fair market value from the trust each year. This allows the beneficiary to avoid being seen as the owner of the trust, which would invoke certain tax treatment.

Crummey Power. This provision allows a grantor to give a certain amount in the irrevocable trust annually without running afoul of gift tax rules. The grantor makes the gift to the trust and the beneficiaries are notified by a letter that they have the right to withdraw that amount within a certain time period (usually no less than 30 days). The beneficiaries don't always withdraw that amount but the ability to withdraw it makes the amount qualify for the annual gift tax exemption.

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