Tag Archives: financial advisor

GOP Lawmaker Hopes To Halt Fiduciary Push

financial freedomMy Comment: This push by the GOP is, in my opinion, more smoke and mirrors from those beholden to the lobbyists from Wall Street. The crux of this issue is that the people who run Wall Street firms do not want their rank and file representatives, the ones who work with people like you and me on a daily basis, to be held to a fiduciary standard.

For those of you who may not understand, a fiduciary standard means that what is said and done by representatives has to be in all respects, in the best interest of those who are clients of those representatives. The push back has been going on for years, and here is another example of how monied interests are more concerned about the welfare of the monied interests than of the general public.

That it “harms thousands of low and middle income Americans’ ability to save and invest for their future” is absolute and utter bullshit. I’m someone who has worked and made a living for the past 40 years, helping low and middle income Americans save and invest for their financial future, not some politician, bought and paid for by Wall Street firms.

Feb 26, 2015 | By Melanie Waddell

Firing back after President Barack Obama endorsed the Department of Labor’s efforts to revise fiduciary rules for retirement plan advice, Rep. Ann Wagner, R-Mo., has reintroduced legislation to require the DOL to wait to repropose its rule until the Securities and Exchange Commission issues its own fiduciary rulemaking.

Wagner’s bill, H.R. 2374, the Retail Investor Protection Act, passed the House last year. But the Senate had “no interest” in taking up the bill and President Obama’s senior advisors threatened that it would be vetoed.

Better Markets and the Consumer Federation of America sent a letter to the full Senate the same day Wagner took action this week, arguing that the DOL rulemaking should be allowed to move forward as the “actual contents” of the DOL rule have not been made public.

Discussion about the DOL rulemaking “has for the most part been based on speculation,” Barbara Roper, director of investor protection for the Consumer Federation, and Dennis Kelleher, president and CEO of Better Markets, said in a letter.

“Much of (the discussion/complaints about the DOL redraft) has been directly contradicted by statements from DOL officials about its expected regulatory approach,” Roper and Kelleher wrote.

In a statement, Wagner said that she is reintroducing her bill because Obama and Sen. Elizabeth Warren, D-Mass., “presented a solution in search of a problem by proposing another massive rulemaking from Washington that will harm thousands of low- and middle-income Americans’ ability to save and invest for their future.”

“This top-down, Washington-centered rulemaking against financial advisors and broker-dealers will harm the very middle-income families that Senator Warren and President Obama claim to protect,” Wagner said. “Americans should be given more freedom to seek sound financial advice without Senator Warren and President Obama’s interference.”

Wagner’s bill says that the SEC would be required to “go first” in issuing its rulemaking under Section 913 of the Dodd Frank Act before the DOL is able to propose a rule that expands the definition of a fiduciary under the Employee Retirement Income Security Act.
But Roper and Kelleher told the Senate that the DOL rule should be “allowed to go forward, so that the public and all stakeholders have an equal opportunity to see the actual content of the rule.” Indeed, they wrote, “as required by law, at the close of the public comment period, DOL will consider all of the comments and input and decide the best course of action consistent with the law.”

By sending the rule to the Office of Management and Budget, DOL is simply starting the process to release the actual proposed rule for public comment, the two wrote.

The OMB review could take several months. Wagner’s bill would also require the SEC to “look into potential issues with a rulemaking establishing a uniform fiduciary standard in regards to investor harm and access to financial products that were not adequately addressed” in the agency’s 2011 study.

The SEC would also be asked under Wagner’s bill to look into “other alternatives outside of a uniform fiduciary standard which could help with issues of investor confusion.”

Wagner’s bill “is an investor protection bill in name only,” according to a statement from the Financial Planning Coalition, which comprises the Certified Financial Planner Board of Standards, the Financial Planning Association and the National Association of Personal Financial Advisors.

The coalition added that it “helped prevent this legislation from becoming law when it was first introduced and continues to oppose it now and in the future,” arguing that it would leave American investors “vulnerable to potential abuses and would substantially impede or even prevent the SEC from proceeding with congressionally authorized fiduciary rulemaking.”

Wagner’s legislation, the coalition stated, “would require the (Securities and Exchange) Commission to consider less adequate and less effective alternatives,” and would also “slow or effectively prohibit the DOL from proceeding with its proposed fiduciary rulemaking for financial professionals who provide investment advice to retirement savers.”

SEC Chairwoman Mary Jo White said last week that she would speak about her position regarding a rule to put brokers under a fiduciary mandate “in the short term,” noting that it remains her priority “to get the Commission in a position to make that decision” on such a rule.

When Patience Disappears

Interest-rates-1790-2012My Comments: We’ve talked extensively about the likelihood of a market correction, if not a crash, coming in the near future, maybe this year. What many have not talked about are the implications of a rise in interest rates.

This is going to happen, given that they’ve been on a downward trend for twenty plus years and can’t go much lower, if at all. If you want folks like me who manage your money to anticipate these things to avoid chaos and help you make money, you should at least be aware of some of the variables. Here’s an articulate overview.

Commentary by Scott Minerd / February 13, 2015

Advance notice of the timing of a rate hike by the Federal Reserve may hinge on the removal of just one word, warns St. Louis Fed President Bullard.

Market observers keen to anticipate the Federal Reserve’s next move are wise to follow the trail of verbal breadcrumbs laid down by St. Louis Fed President James Bullard, a policymaker I hold in high regard. When Fed policy seems uncertain or even inert, Dr. Bullard’s public statements have historically been a Rosetta stone for deciphering the Fed’s next move.

For example, in July 2010, Bullard wrote in a report ominously titled “Seven Faces of the Peril” that it was evident the Fed’s first round of quantitative easing had not been sufficient to stimulate the economy. In the report, which was widely picked up by the financial press, Bullard warned about the specter of deflation in the U.S. economy, and that the U.S. was “closer to a Japanese-style outcome today than at any time in recent history.”

That summer, months ahead of any Fed decision to proceed with QE2, it was Bullard who began a drumbeat of steady public messages about the necessity of a second round of easing. By August, the Fed was not talking about whether it should implement a new round of QE, but how. In November 2010, the Fed announced its plan to buy $600 billion of Treasury securities by the end of the second quarter of 2011. If you followed Bullard, you were expecting it.

While Bullard is not a voting member of the Federal Open Market Committee this time around, I still view him as an important policy mouthpiece. That is why it was so interesting when he underscored Fed Chair Janet Yellen’s comments at a press conference following the committee’s Dec. 16-17 meeting in an interview with Bloomberg, saying that the disappearance of a specific word—“patient”— from the Fed’s statement may be code that a rate increase will come within the next two FOMC meetings. He reiterated the point in a subsequent speech, saying “I would take [“patient”] out to provide optionality for the following meeting…To have this kind of patient language is probably a little too strong given the way I see the data.” When Bullard, the man who told us months in advance to expect QE2, goes to great length to describe when the Fed will raise rates, I tend to pay attention.

While Bullard says the Fed could raise rates by June or July (and I wouldn’t rule that out), I think the likelihood is closer to September and that the central bank will likely raise rates twice this year. Whenever “lift off” actually occurs, we’ve long been anticipating that this day would come. It is a particularly interesting time for investors to consider increasing fixed-income exposure to high quality, floating-rate asset classes, such as leveraged loans and asset-backed securities. The good news is there is still time to prepare for when the Fed finally runs out of patience.

7 Social Security Mistakes to Avoid

SSA-image-2My Comments: Social Security payments are a critical financial component of many lives these days. When it began in 1935, there was much gnashing of teeth among the political parties since it represented a recognition by the government that some people needed help. This was in a world recovering from the Great Depression and watching the developing threat of Communism in the Soviet Union.

Today, many millions of us pay into the system monthly and many millions of us receive a check every month. Some of us, like a client of mine, has a permanent disability that he was born with and qualifies for help with living expenses. He has never been able to earn a living and few surviving family members to help him get by from day to day.

I readily admit to an element of socialism in this process. But I live in a world of rules imposed on us by society where society has deemed it to be in the best interest of the majority that those rules exist. Like making us all drive on one side of the road instead of at random. Think about that for a minute if you choose to believe that society should have no role to play in our lives or that socialism is inherently evil.

Okay, enough political chatter. Here’s useful information about claiming benefits from the SSA.

by John F. Wasik / FEB 17, 2015

Most clients get lost trying to navigate Social Security on their own. There are about 8,000 strategies available for couples and more than 2,700 separate rules on benefits, according to the Social Security Administration. Yet most couples don’t explore all the possibilities; as a result, they end up leaving an estimated $100,000 in benefits on the table, reports Financial Engines, an online money management firm.

For many advisors, talking to clients about Social Security often means having a brief conversation that ends with the traditional advice of “wait as long as you can until you file.” But Social Security, with its myriad filing-maximization strategies, should play a much larger role in a comprehensive planning discussion.

Consider these basic questions: How do you ensure a nonworking spouse reaps the highest possible payment? Should the higher earner wait until age 70 to receive payments? What’s the advantage of taking benefits at age 62? Should clients take benefits earlier if they are in poor health? How can divorcees claim a benefit based on an ex-spouse’s earnings?

Clearly, there are several right and wrong routes to maximizing Social Security benefits. Here are some of the most common mistakes and how advisors can address them.

1. Not planning for opportunity cost
What’s the cost of waiting to take Social Security? How will withdrawals from retirement funds impact clients’ portfolios?

Advisors need to understand how a Social Security claiming strategy will affect a client’s net worth, notes Ben Hockema, a CFP with Deerfield Financial Advisors in Park Ridge, Ill. “If you wait to take Social Security, that will mean withdrawing more money from a portfolio,” he says. “The Social Security decision involves trade-offs.”

Hockema runs Excel spreadsheets in conjunction with specialized Social Security software to show clients what opportunity costs look like in terms of lower portfolio values, displaying return assumptions with graphs.

Many financial advisors point out that the answer is not always to wait until 70 to take Social Security. You have to take a broader view.

2. Failure to consider family history
What are the client’s family circumstances? What do they expect in terms of life expectancy? Have other relatives been long-lived?

Even if answers are imprecise, the discussions can provide valuable insights into how to plan Social Security claiming, say advisors who are trained in these strategies. But it’s the advisor’s role to tease out that information, notes CFP Barry Kaplan, chief investment officer with Cambridge Wealth Counsel in Atlanta. “People often have no clue” about the best Social Security claiming strategies, Kaplan says. “It’s complicated.”

3. Not integrating tax planning

One key question to consider: What are the tax implications of a particular strategy, given that working clients will be taxed on Social Security payments?

Here’s how Social Security benefits taxation works: If your clients are married and filing jointly, and their income is between $32,000 and $44,000, then they may have to pay tax on half of their benefits. Above $44,000, up to 85% of the benefits can be taxed.

For those filing single returns, the range is from $25,000 to $34,000 for the 50% tax and 85% above $34,000. Be sure you can advise your clients on how to manage their income alongside their Social Security benefits.

4. Failing to ask about ex-spouses
Be sure to ask your clients about their marital history, understand what they qualify for and analyze how it will impact their cash flow. Was the client married long enough to qualify for spousal benefits? How much was the client’s ex making? Be sure to walk through different options with clients.

Kaplan offers the example of a 68-year-old woman who was twice divorced: “She was still working, and it had been 20 years since her last marriage,” Kaplan says. “I then discovered … a former spouse’s income that netted my client an immediate $6,216 — six months in arrears — and would result in an additional $1,036 per month until age 70, for a total [of] $30,000 in additional benefits.”

Kaplan’s divorced client was able to claim benefits based on her first spouse’s earnings, which boosted her monthly payment considerably.

5. Overlooking spousal options
A key question to ask: Does the “file and suspend” strategy make sense in your clients’ situation? In this case, the higher-earning spouse can file for benefits, then immediately suspend them, allowing the monthly benefit to continue to grow even if the other partner receives the spousal benefit.

The result: The lower-earning spouse can collect benefits while the higher-earning spouse waits until 70 to collect the highest possible payment.

6. Not taking advantage of new tools
Although specialized software packages can generate a range of benefit scenarios, only 13% of planners use subscription-based tools designed for Social Security maximization. (Most planners do have some comprehensive planning tools available, but they may not integrate Social Security scenarios.)

Most planners rely upon the free and often confusing calculators from the Social Security Administration, along with online calculators and general planning software, according to a survey by Practical Perspectives and GDC Research.

That’s despite the fact that only a quarter of planners “are comfortable enough to plan and recommend Social Security strategies to clients,” the survey noted.
A detailed conversation about Social Security may be even less likely to occur with high-net-worth clients, according to the survey.

When you approach Social Security with your clients, consider that there are multiple nuances within the system’s rules that few practitioners have studied, and these could result in higher payments. You may need some of the sophisticated tools now available.

7. Dismissing it altogether
There’s another reason clients — and often planners — don’t drill down into Social Security strategies: They don’t think it will be available in coming decades.

But don’t write it off altogether. The truth is that Social Security’s trust fund, the money held in reserve to pay for future retirees, is adequate to pay full benefits until 2033. If Congress does nothing to address the funding shortfall, the government will pay three-quarters of benefits until 2088.

And Social Security is one of the most successful and popular government programs in history, so it’s difficult to bet against its long-term survival.

David Blain, president of BlueSky Wealth Advisors in New Bern, N.C., suggests that, in addition to carefully reviewing benefit statements and earnings records, advisors should explore other aspects of Social Security, including spousal, death and survivor benefits.

“You need to take it seriously,” Blain says about integrating Social Security into a plan. “Clients may not understand it and think it’s not going to be there for them.”

John F. Wasik is the author of 14 books, including Keynes’s Way to Wealth. He is also a contributor to The New York Times and Morningstar.com.

The First Sign of an Impending Crash

080519_USEconomy1My Comments: Another in a littany of warnings about pending doom. It gets a little tiresome,doesn’t it? Especially when there are others who swear the signs are there for continued gains. My gut tells me this guy is probably right.

By Jeff Clark Thursday, February 12, 2015

Investors have plenty of reasons to be afraid right now…

There’s the rapidly falling price of oil… The big decline in the value of global currencies… The Russian military action in the Ukraine… And the possibility of the European Union falling apart.

It’s unsurprising that many investors are looking for the stock market to crash. And – as I’ll show you today – we’ve seen the first big warning sign.

But here’s the thing…

Stock markets don’t usually crash when everyone is looking for it to happen. And right now, there are far too many people calling for a crash…

Once we get through this current period of short-term weakness that I warned about on Tuesday, the market is likely to make another attempt to rally to new all-time highs.

This will suck investors in from the sidelines… And get folks to stop worrying.

Then, later this year, when nobody is looking for it… the market can crash.

But for now, just to be on the safe side… Keep an eye on the 10-year U.S. Treasury note yield…

The 10-year Treasury note yield bottomed on January 30 at 1.65%. Today, it’s at 2%. That’s a 35-basis-point spike – a jump of 21% – in less than two weeks.

And it’s the first sign of an impending stock market crash.

As I explained last September, the 10-year Treasury note yield has ALWAYS spiked higher prior to an important top in the stock market.

For example, the 10-year yield was just 4.5% in January 1999. One year later, it was 6.75% – a spike of 50%. The dot-com bubble popped two months later.

In 2007, rates bottomed in March at 4.5%. By July, they had risen to 5.5% – a 22% increase. The stock market peaked in September.

Let’s be clear… not every spike in Treasury rates leads to an important top in the stock market. But there has always been a sharp spike in rates a few months before the top.

It’s probably still too early to be concerned about a stock market crash… But keep an eye on the 10-year Treasury note yield. If it continues to rise over the next few months, then you can start to worry.

Good investing,

Jeff Clark

5 Key QLAC Rules to Help You Defer Taxable Income

financial freedomMy Comments: Yesterday, President’s Day, was all about memories and things past. Today, we’re back with a somewhat esoteric idea to help you grow and keep your money.

Much of the talk in Washington these days is about income inequality and how much the 1% make each year. For some of us in the 99%, there is little dispute that legitimate ways can be found that defer taxes. This is one of them.

The IRS recently approved a way for us to defer ordinary income taxes on some of the money we may now have in what are known as “qualified plans”. That’s IRS speak for money that has NOT BEEN TAXED YET. Think IRA, or 401k, or 403b, and so on.

They, the IRS, introduced QLACs, which is an acronym for Qualifed Longevity Annuity Contracts. Here is a definitive explanation. (BTW, I have no idea what the initials after the authors name implies!)

Denise Appleby, APA, CISP, CRC, CRPS, CRSP

A longer life expectancy is one of the many benefits of modern medicine and healthy living. But with that longer life comes the risk that retirees may outlive their savings – a primary concern for many Americans.

To address those fears, many financial advisors are recommending annuity products, and the IRS has joined in by issuing final regulations on qualified longevity annuities that individuals can purchase in eligible retirement accounts. These regulations, issued on July 21, 2014, apply to contracts purchased on or after July 2, 2014.

Background
With the exception of Roth IRAs, retirement account owners must begin to take required minimum distributions (RMDs) for the year in which they reach age 70½. Qualified plans, 403(b)s and governmental 457(b) accounts can allow eligible participants to defer starting RMDs past age 70½ until retirement.

An RMD amount for a year is calculated by dividing the previous year-end fair market value (FMV) of the retirement account(s) by the account owner’s applicable life expectancy for the RMD year.

If an individual owns multiple traditional, SEP, and SIMPLE IRAs, the RMDs for each of those IRAs must be calculated separately, but can be totaled and taken from one or more of the IRAs. This aggregation treatment can also be applied if an individual owns multiple 403(b) accounts.

RMDs cannot be aggregated for qualified plans, such as 401(k) and pension plans.
Some individuals who already have sufficient income from other sources may prefer to avoid or defer the usually taxable income from RMDs for as long as possible. The qualifying longevity annuity contract (QLAC) rules provide what some consider a partial solution for these individuals.

The following is an explanation of some of the key QLAC provisions.

1. Eligible accounts
These QLAC rules apply to traditional IRAs, defined contribution plans, 403(b) plans, and eligible governmental 457(b) plans. For this purpose, “traditional IRA” includes SEP IRAs and SIMPLE IRAs. These QLAC rules do not apply to Roth IRAs because the RMD rules do not apply to Roth IRA owners. They also do not apply to defined benefit plans, as defined benefit plans already provide for distributions in the form of annuities.

2. Delayed required beginning date provides opportunity for deferred RMD income
Generally, RMDs must begin by the required beginning date (RMD), which is April 1 of the year that follows the year in which the account owner reaches age 70½.

For employer-sponsored retirement plans, the required beginning date (RBD) can be deferred until April 1 of the year that follows the year in which the participant retires from working for the plan sponsor. For retirement account owners who would prefer to defer starting RMDs past the RBD, QLACs provide an opportunity to defer RMDs on a portion of their account balances.

Under the QLAC rules, the annuity starting date for a QLAC is the first day of the month following the month in which the retirement account owner reaches age 85. A QLAC could include provisions that allow an earlier start date, but it is not required to do so.

3. QLAC excluded from FMV in RMD calculation
The value of a QLAC is excluded from the FMV used to calculate RMDs for the years before the annuity start date. This allows for a smaller RMD amount for those years.

4. QLAC Limits
The amount of the premiums paid for a QLAC cannot exceed the lesser of $125,000 or 25% of the owner’s account balance on the date of payment.

The $125,000 limit rules
• All of the owner’s retirement accounts are aggregated for the purpose of the $125,000 limit.
• The $125,000 is reduced by any QLAC premiums paid on or before the date of the QLAC premium payment for any other IRA or employer-sponsored retirement plan.
• The $125,000 limit is indexed for inflation in $10,000 increments.

The 25% limit rules
• The limit is determined separately for each defined contribution plan.
• The limit is determined separately for each eligible governmental 457(b) plan.
• The limit is determined separately for each 403(b) plan. This is a deviation from the RMD rules, which provide that 403(b) accounts can be aggregated for RMD purposes (see background section above).
• IRA balances are aggregated and treated as one when determining if this limit applies. Consistent with the RMD aggregation rule for IRAs, a QLAC can be purchased in one IRA even if another IRA balance is used to satisfy the 25% limit.
• The 25% is reduced by any QLAC premium payment for the same QLAC or another QLAC that is held or purchased for the owner’s IRAs.
• Aggregation by account type is not allowed. For instance, IRAs cannot be aggregated with qualified plans or 401(k) plans.
• IRA balances are determined as of Dec. 31 of the year that precedes the year in which the premium is paid.
• For employer-sponsored retirement plans, the balance is the account balance as of the last valuation date preceding the date of the premium payment. This is adjusted by adding contributions allocated to the account during the period that begins after the valuation date and ends before the date the premium is paid and reduced by any distributions made from the account during that period.

An important distinction for the FMV is that while the QLAC is excluded for the purposes of calculating RMDs, it is included for purposes of applying the 25% limit.

Let’s look at some examples:
Example 1
Sally has a 401(k) account with a balance of $500,000, an IRA with a balance of $40,000, and a 403(b) with a balance of $25,000. If she pays a QLAC premium of $125,000 from the 401(k) account, no additional QLAC premiums can be paid from any of the other accounts. This is because her QLAC premiums cannot exceed $125,000.

Example 2
Assume that the facts are the same as in Example 1, except that Sally pays a QLAC premium of $25,000 from the 401(k) account. She can pay additional QLAC premiums from the other accounts as long as the aggregate payment does not exceed $125,000 and the premium from one account does not exceed 25% of the account balance.

Example 3
Jim has a traditional IRA with a balance of $50,000, a 403(b) account with a balance of $100,000, and a 401(k) with a balance of $200,000. Jim’s QLAC premium cannot exceed the lesser of $125,000 or 25% of his account balance.

Jim’s total account balance is $350,000 and 25% of that is $87,500. Because of the restriction on aggregation of the 25% rule, Jim’s QLAC premium cannot exceed:
• $12,500 for the IRA
• $25,000 for the 403(b) and
• $50,000 for the 401(k) account.
If all three of the accounts were IRAs, then the QLAC could have been purchased in any of the IRAs.

5. Roth LACs are not QLACs
Annuities, including qualifying longevity annuity contracts, are not QLACs if they are purchased in a Roth IRA, even if they otherwise meet all of the requirements for a QLAC. If a QLAC is converted to a Roth IRA, it loses its QLAC status as of the date on which the conversion occurs.

Amounts held in Roth IRAs, including any QLAC that is converted to a Roth IRA and, as a result, loses its QLAC status, are not taken into consideration when determining the $125,000 and 25% QLAC limits.

Responsibility for monitoring limits
In general, the account owner is responsible for ensuring that the QLAC limits are not exceeded. Unless the IRA custodian or plan administrator has knowledge to the contrary, they are allowed to rely on the account owner’s representation that the limits are not being exceeded. For qualified plans, the reliance on the account owner’s representation does not extend to amounts held under a plan that is not maintained by the employer.

If the premium amounts are exceeded, the annuity contract could fail to be a QLAC unless the excess premium is returned to the non-QLAC portion of the account on a timely basis.

Other factors to consider
The guaranteed lifetime income-deferred RMD on QLACs and reduced RMDs as a result of excluding QLAC premiums are only some of the factors that should be considered when determining suitability. Another issue to take into account is the benefits payable to beneficiaries, including any optional features available when choosing a QLAC product. The availability of optional features could vary among different providers and products.

Why Don’t Kids Walk to School Anymore?

My Comments: Given the nature of how we live our lives these days, this is probably a very naive question. But it sure reminds me of my younger days. How about you? Click on the picture of me, taken in Peoria, Illinois where I walked to school every day for two years from our house on Bigelow Street.

RAK+Bigelow-03Feb 04, 2015 | 151-part series  |  CityWalk

In the late 1960s, nearly 50 percent of American children walked to and from school each day. In this short film produced by City Walk, experts discuss the decline of a once-common activity—and why it would still benefit children today. “Kids need to walk to school so they learn about active transportation,” says University of Utah professor Elizabeth Joy. “When you have to go two, three, or four blocks, that doesn’t mean you get in the car. You can actually walk.”

Which Trust to Use?

will with clockMy Comments: First, a DISCLAIMER: I am NOT an attorney and it would be best if no one accuses me of practicing law without a license. There’s an ongoing issue about this in Florida right now.

But I do get asked questions about trusts and it helps to have a little basic knowledge. I also know several qualified attorneys whose names I will share if asked. This is to help you get started if you have questions. Know too that the rules about step-up in basis may be invalidated soon.

by Ingrid Case / FEB 5, 2015

Trusts, which can range from simple to extremely complex, are a standard tool in the anti-estate-tax arsenal.

There is just one firm rule: If the trust benefits a spouse, “you must cause the trust to be included in the second spouse’s estate, for estate- tax purposes,” says Samuel Donaldson, a professor of law at Georgia State University. “There may be a lot of gain inside the trust. Because it’s subject to estate tax, it gets the step-up in basis. If it’s not included in the second spouse’s estate, the assets would have the same basis as at the first spouse’s death.”

Trust options include, but are certainly not limited to:
Credit shelter trust: If, between the first spouse’s death and the second, the estate is likely to grow beyond what the portability will shelter, Donaldson suggests that members of a couple leave everything outright to the surviving spouse, but put a provision in the will saying that disclaimed assets must pass into a credit shelter trust. “Which to choose depends on the assets, the expected appreciation between the two deaths, the consumption habits of the surviving spouse, and the estate-tax exemption in place at the second spouse’s death,” Donaldson says.

Clayton QTIP trust: Clients who want to leave assets in trust for the surviving spouse (and potentially other beneficiaries) should use a Clayton QTIP trust, Donaldson suggests. “It’s just like an ordinary QTIP, but to the extent that you do not make a QTIP election on the assets sitting inside the trust, the unelected assets pour over automatically into a credit shelter trust,” he says.

Spousal limited access trust: This irrevocable trust lets clients use their gifting exemption while still retaining access to the gifted assets. Spouses each create an irrevocable trust and contribute assets up to their exemptions. Each spouse is the beneficiary of the other spouse’s SLAT; spouses can also name additional beneficiaries. No estate taxes are due on the trust assets at the death of either spouse. “You can withdraw assets on a limited basis, and you have control over how assets are invested. The spouse can access the trust if they are otherwise out of money — it’s the spare gas tank. If the spouse doesn’t need it, the beneficiaries get it,” says Charles Bennett Sachs, principal at Private Wealth Counsel in Miami.

Irrevocable life insurance trust: Inside or outside a trust, life insurance can help beneficiaries pay estate taxes. When the death benefit is paid to a trust instead of an estate or individual, it stays outside the estate’s taxable value. Transfer an existing policy to a trust at least three years before the donor dies, however, or the IRS will consider the death benefit part of the taxable estate.

Charitable remainder trusts: “Assets can pay to a client for life, to children for life, and to grandchildren for a period of time, and then go to charity,” Munro says.

Irrevocable trusts: These can serve as vehicles for transferring a business to the next generation. Bruce Brinkman, a planner at Allen, Gibbs & Houlik in Wichita, Kan., cites as an example some clients whose estate is worth close to $30 million and who have a $6 million estate-tax liability. They want to move a company they own out of their estate now, before it appreciates further. To minimize estate tax, Brinkman recommends that they gift about half the company to an irrevocable trust, with the three adult children as beneficiaries. Appreciation and distributions will happen outside the estate and will not be subject to income tax — and the trust can use the distributions to buy the other half of the company over 10 to 15 years.