Effective Gifting Strategies
Maintaining flexibility in your estate strategy

We recently helped a client solve some estate planning issues with a number of instructive ideas that may benefit others. Our client, a widower in his 80's, has an estate of significant size. He had established trusts for the benefit of his children, but was interested as well in gifting upon his death to family members (other than his children) and to charities. Our challenge was to identify the best way to implement his intentions so as to maintain flexibility (in case he wished to make future changes in his plans), to maintain ownership of assets (so that they would be able to support him, if needed), and finally to minimize the costs of executing his plans (legal fees, estate & income taxes, probate fees). To achieve his plans required using beneficiary designations in his IRA and Schwab One accounts (using "Transfer on Death" provisions).

We proposed that the gifting to family be done within a separate account for which family members would be designated as beneficiaries to receive funds upon the client's death using a "Transfer on Death" provision. This would require establishing an additional account with funds transferred from his existing account into the new "Family Gifting" account.

With respect to gifting to charities, we suggested using IRA funds. IRA assets gifted to charities avoid both income taxes and estate taxes that might otherwise result in losing as much as 85% of the IRA to taxes. We proposed creating a second ‘Charitable IRA' account with transfer of approximately half of the assets from his existing IRA account.

It is notable that each of these new accounts is completely revocable; i.e., the client can change beneficiaries, bequeathed amounts, or completely close these accounts at any time were his wishes to change without triggering either income or estate taxes or legal fees at the time of the change. Finally, we suggested consideration of a Gifting Trust or Foundation account which could be funded either by some portion of the annual required minimum distributions (RMD) he takes from his IRA and/or upon his death by designating this Gift Trust account as a beneficiary of his Charitable IRA (instead of or in addition to other specific charities he had named). One benefit of this is that his children could serve as co-trustee on the account. This Gift Trust account, however, would not be revocable, that is, the client could not retrieve funds for his own use once they had been transferred into this account.

We believe these ideas are not generally understood by many investment advisors and can serve a number of purposes in effective estate planning.