Estate, Financial and Business Planning

Among the more sophisticated estate planning and wealth preservation projects the attorneys of Strauss & Malk LLP have done for our clients are the following:

Creating Fully Integrated Wills and Revocable Trusts

With these instruments, we not only handle asset management and reduce estate taxes, but also protect assets from the possible claims of a future spouse, provide for appropriate investment authority and management for a closely held business, provide educational trusts for children or grandchildren, delay large distributions to descendants until appropriate achievement goals are met, provide for proper trustees and trustee succession over time, handle the family's charitable desires, and include other provisions of importance to the client.

Our client’s wills and trusts meet the technical requirement of, and deal with techniques for, estate and inheritance tax reduction. Just as importantly, we advise our clients on how best to tailor the documents to meet their specific needs. Examples include the following:

  • Requiring that the grandchildren be productive members of society for a significant period of time in order to receive their inheritance. This might include working for a period of years, or being a full-time stay at home parent, providing military service, doing verifiable charitable work, or other productive activity in order to receive a bequest.
  • Giving a trusted advisor the right to make changes in the document in future years, to take into account unforeseen developments.
  • Providing special needs planning for a child or grandchild with physical or emotional difficulties.
  • Adding provisions requiring a particular religious affiliation or observance, in order to receive an inheritance.
  • Providing for the creation of a family foundation to carry out charitable works, and to allow family members to run it.
  • Appointing a committee of specifically chosen people to run a family business for a period of time after the death or disability of the founder.
  • Requiring the sale of a portfolio of real estate after the client’s death, in a measured manner over several years, to raise revenue for family and charitable needs.
  • Providing a “private bank” to lend money at favorable rates and terms to family members over time, so that they can use family resources to be productive, but not to preclude the family members from having to work.
  • Providing equalization for children or grandchildren who have received substantial advancements of their inheritance during the client’s lifetime.
  • Holding assets in trust for a child or grandchild who cannot manage assets himself, or who has had creditor problems preventing that person from receiving the assets directly.

Creating a Family Limited Liability Company (LLC)

There can be significant advantages to creating a family limited liability company (LLC) and a series of "intentionally defective" irrevocable grantor trusts. The client contributes assets to the new LLC, makes small initial gifts to the trusts, and then sells minority LLC interests to the new trusts, at a value discounted for minority interests and lack of control, in exchange for promissory notes. As the lifetime applicable exclusion from gift tax and generation skipping tax ("GST") exemption need only be applied to the initial gifts to the trusts, significant leverage of the applicable exclusion and GST exemption can be achieved.

Creating Dynasty Trusts

Now that private trusts in Illinois can be perpetual (i.e. not subject to termination after a period of time under the old Rule Against Perpetuities), trusts can be created that, if properly structured and exempted from GST tax, can provide estate and gift tax free benefits to the client's descendants for generations.

Making Life Insurance Estate Tax Free

Life insurance proceeds can be rendered estate tax free for one or multiple generations, using single life insurance or survivorship (second to die) life insurance. By creating an irrevocable trust, and having it acquire the life insurance initially, the proceeds of that insurance can be made exempt from income tax and estate tax at the death of the insured person or persons and, with a little additional planning, retain the exempt status when held in trust for children, grandchildren or more remote descendants. Generally, this can be done while using only small portions of the insured client's lifetime exemption from gift, estate and GST tax. Often the client can accomplish these transfers without paying any transfer tax.

Negotiating with the IRS with Regard to the Valuation of Stock

We have successfully negotiated with the IRS with regard to the valuation of stock of a closely held business for purposes of federal estate taxes (Form 706). After filing a federal estate tax return for a decedent, we negotiated with the IRS regarding the value of the stock, settling for 13% of the amount sought by the IRS. We have also handled and negotiated a successful settlement of an IRS audit of a large heavily discounted gift on a client’s gift tax return (Form 709). This arose from the use of a family limited partnership technique in order to transfer family assets and substantially reduce future estate taxes. The audit concluded with our client maintaining a substantial discount on the transfer of his family limited partnership interests to his children.

Preparing Family Agreements

Family agreements can be created for the management of a family business or a family vacation residence, which takes into account the need to allow individuals to leave the business or sell their percentage ownership in the residence and be paid out over time, in a manner that is not financially oppressive to the remaining owners. The agreement also handles issues of control, management and disability.

Creditor Protection Planning

As part of a proper estate and financial plan, we assist our clients in protecting assets from the potential claims of future creditors. Their portfolio assets, real estate, entrepreneurial businesses, and other assets are potentially protectable. People in various personal service professions, including medical and law practices, and investors in high risk enterprises may wish to protect other assets from the potential claims of future creditors. There are a variety of trust, partnership, LLC and corporate structures, domestic and foreign, which can be used as part of an overall estate plan in order to provide for the client’s family or others, while at the same time protecting substantial portions of that client’s assets from these potential claims.

Creating an Asset Protection Trust in an Offshore Jurisdiction

When properly structured and implemented, and after the applicable statute of limitations period has expired (generally one or two years), significant protection from future creditors can be achieved, while still having trust assets remain available on a reasonable basis for the beneficiaries, who can include the client/grantor.

Qualified Personal Residence Trusts

We have established QPRTs for many residences of our clients. A QPRT can be established for the primary residence or a secondary (vacation) home. It is a way of transferring title to the property into trust, while preserving the use and control of the property over the term of the trust, which is usually between 5 to 15 years. By this deferral, a substantial reduction in value for gift tax purposes can be achieved. Ultimately, the children or other people the client selects become the owners of the property and, if the client desires, he can then lease the property back from them. This allows him or her to continue to use the property for as long as desired, and continue to reduce his or her estate by the payment of rent. Property held in a QPRT has a greater level of creditor protection than property owned by the client individually.

State, Estate and Inheritance Taxes

The consequence of the reduction in U.S. estate taxes since 2001 has been the reduction in the state’s share of this tax money. As a result, many states, including Illinois, recently have been “decoupling” from the federal tax system and imposing their own estate or inheritance taxes. We help our clients plan to reduce, avoid or postpone these new estate and inheritance taxes.

We welcome you to contact Strauss & Malk LLP about our estate, financial and business planning services. We are mainly based in Northbrook, Illinois, but also have offices in Lake Forest and Chicago.