A little Estate Planning can go a long way in reducing inheritance taxes. This case study is an example of how the Estate Planning Lawyers at Klenk Law can help LGBT couples.
Background
Bucks County, Pennsylvania resident Mr. Smith was a single man without children. Mr. Smith wanted to leave his partner $500,000 at his death for his partner’s care and use. At his partner’s death, Mr. Smith wanted any remaining money to pass to his nieces and nephews.
The Case
Basic Planning: Mr. Smith came to us with a typical Will. This Will gave his Partner $500,000 outright, which would have been subject to 15% Pennsylvania Inheritance Tax of $75,000.00. Further, this outright gift is subject to the Partner’s creditors, lawsuits and gives the Partner the discretion to leave any remaining money to whomever he wishes at his death; potentially completely ignoring Mr. Smith’s wishes about the nieces and nephews. Further, even if his partner did respect Joe’s wish, a gift from his partner to his nieces and nephews is subject to another 15% Pennsylvania Inheritance Tax. Potentially, this could have been an additional $425,000 x 15% = $63,750.00 tax.
Our Advanced Estate Planning Option: After brainstorming various options, Mr. Smith decided to have us create an Irrevocable Trust for his partner during his lifetime. Mr. Smith gave the trust $500,000. The Trust terms allowed his partner’s use of trust funds after Mr. Smiths’ death. Mr. Smith died two years later; avoiding the $75,000.00 Pennsylvania Inheritance Tax.
His partner later married and then died five years later. At his partner’s death, the trust contained $300,000, but his partner had no right to give the $300,000 to his new husband, which he likely would have if the funds were in his name. Further, the $300,000 passed to Mr. Smith’s nieces and nephews free of the $45,000 Pennsylvania Inheritance Tax due had his partner given the money to them in his Will.
The Outcome
A $120,000 tax savings. Plus, his partner had the use of the funds during his life sheltered from creditors, and possible divorce and the money passed to Mr. Smith’s family rather than his partner’s new spouse.
If you are part of an LGBT relationship, do not limit yourself to the old fashioned “I love you” Will, instead, examine the many options presented by Irrevocable Trusts. If you have any questions about LGBT Estate Planning, don’t hesitate to contact us to request a free consultation.