Even after passage of the 2017 Tax Act, several common estate planning techniques that work well with low interest rates continue to be helpful for ultra-high-net-worth (UHNW) families to transfer legacies to future generations at minimal income, gift, estate and other transfer tax costs. Even more importantly, and despite the estate tax cuts under the new tax act—which are set to expire in 2026– many affluent families, UHNW or not, desire liquidity for needs other than taxes– such as to repay debt, buy-out assets from one another, to equalize an inheritance, take care of a special need or circumstance, transfer a business interest, or even to replace wealth transferred to charity, for example. To these ends, life insurance continues to work swimmingly with these strategies to create family liquidity efficiently. Each of the approaches may have some of the following effects:
- Discounting, if not completely eliminating, the value of the transfer for tax purposes;
- Freezing an asset’s appreciation so it remains outside the taxable estate, creating an opportunity for additional tax-free gifts of the appreciation to be made;
- Leveraging an asset’s income to create estate liquidity;
- Minimizing income taxes by preserving basis, and;
- Addressing non-tax issues, such as equalization, buy-outs, special circumstances and money management.