Beth Ellis, a vice president and trust officer at Bluestone Bank in southeastern Massachusetts, is paying close attention to possible changes in estate tax regulations at the state and federal level. In this exclusive interview, she describes the best way for family offices to minimize their estate taxes, how to start planning to move assets into a trust and what pitfalls to look out for within the process.
What’s the best way for family offices to use trusts to help minimize estate taxes?
Utilizing trusts in your estate plan is a smart choice, since trusts are tailored to the needs and goals of the individual. Trusts can serve multiple purposes — minimizing estate taxes, control over the assets during and after lifetime. Trusts give control over the method of distribution to beneficiaries and contain language for charitable giving, scholarship programs, protection of benefits for disabled individuals.
What steps do people need to start taking in advance?
Here are the basic steps:
- Seek advice from professionals such as bank trust departments, financial advisers, attorneys and accountants to discuss your estate planning needs, goals and options.*
- Understand there is a federal estate tax [the so-called death tax]. It is a tax on a deceased person’s estate. For 2023, the federal tax rate ranges from 18% to 40% for estates with assets above the exclusion limit of $12.92 million. The federal exemption is portable between spouses. If proper tax planning is done, a married couple can protect up to $25.84 million upon the death of both spouses. If you have no federal estate tax, you may still be subject to state estate tax.
- Determine the value of your estates. This includes IRAs, life insurance, bank accounts, investment accounts, annuities and real estate to see if you have to be concerned about estate taxes.
- Determine if your state has an estate tax. There are a number of states that do not have an estate tax — such as New Hampshire, New Jersey and Florida, just to name a few.
- Determine the amount of the estate tax threshold or exclusion for the state you live in. For Massachusetts, the current exclusion amount is $1 million per individual. This means if an individual dies with over $1 million in his or her estate, a tax return must be filed, and the tax applies to the entire estate, not just those assets over the exemption. With proper tax planning, a married couple can protect up to $2 million upon the death of both spouses.
What types of family offices are best poised to do this?
Whether you use a bank trust department, trust company or family office [single, multiclient or multigenerational], they are all suited to assist with utilizing trusts for tax planning purposes. Which financial institution to utilize should be determined on an individual basis, taking into consideration the family’s wealth, the sophisticated issues that come with having such wealth, along with the family dynamics and the needs of the client. An individual needs to consider what services the institution provides [bill payment, investment management, health and wellness, charitable giving, tax and estate planning], how many years of experience the institution has, the stability of the institution and whether they have areas of expertise that will meet the needs of the individual and their family.
What are the biggest challenges people face when setting up trusts?
Challenges vary according to every individual’s goals, needs, comfort level and family dynamics. For example, it may be hard to get started, since an individual may find it difficult to discuss their demise.
Some individuals are worried about the expense. We try to have them focus on the savings and meeting their goals and not the expense of the plan. You either pay now or pay later.
It may be hard to make a decision on who should be named as trustee, successor trustee, personal representative of the estate, when there are complex family dynamics such as a second marriage or individuals that do not get along.
In addition, not having full control over an asset can present a real challenge.
Are there new tax codes and regulations related to trusts and estate taxes that we should be aware of?
Rules, regulations and laws change constantly, and you should have your estate plan reviewed at least every five years or sooner, should there be changes in your circumstances.
For Massachusetts, there are currently two bills in the state Legislature to increase the estate tax exemption to $2 million or $3 million.
If there is no new tax legislation by Jan. 1, 2026, the current federal lifetime exemption will be reduced by about 50%, adjusted for inflation.
* This is not intended to be legal or tax advice. You should always seek the advice of your certified public accountant and estate attorney.
Puai Wichman: 5 myths and misconceptions about offshore trusts debunked
Puai Wichman, founder and CEO of Ora Partners, an international trust provider and wealth management firm, explains the most common misconceptions about offshore trusts in this exclusive piece for Crain Currency.
About two-thirds of Americans have not taken the basic steps in developing any type of estate planning, such as placing assets in a trust. The low percentage of the population who have placed assets into trusts can be partly attributed to the myth that trusts only benefit a privileged few. However, taking the steps to transfer ownership of their assets to a trust can help individuals protect their hard-earned wealth and potentially reduce tax liability.
Similarly, offshore trusts are a powerful tool for wealth management and asset protection, but the misperceptions about trusts are amplified when it comes to establishing a trust in a different jurisdiction. These myths persist even though a wide range of people can benefit from trusts in general, and those benefits can be extended substantially by creating an offshore trust.
In this article, we will examine some of the most common myths about offshore trusts and clarify how offshore trusts provide a secure and private way to reduce the risks and liabilities that threaten anyone who has financial or real estate assets.
Myth No. 1: Offshore trusts don't offer any unique advantages
One of the most common misconceptions about offshore trusts is that they don’t offer any advantages compared to domestic trusts. However, offshore trusts provide a range of enhanced benefits, including better statutory frameworks, stronger asset protection and enhanced privacy protections, compared to trusts created under domestic laws.
For example, many offshore jurisdictions have favorable laws that allow enhanced versatility in administration and management. Additionally, offshore trusts can be structured to provide greater asset protection, as they are often established in jurisdictions with stronger legal frameworks that make it more difficult for creditors and other legal claimants to seize your assets. They are also regulated under the same standards as banks and insurance companies and are required to maintain certain capital adequacies as other financial institutions. Finally, offshore trusts extend greater privacy protections, as they are often subject to strict confidentiality requirements that protect the confidentiality of your financial affairs.
Myth No. 2: The expenses of offshore trusts negate the potential benefits
Even when the potential benefits are well-understood, it’s a common myth that the expense of setting up and managing an offshore trust outweighs its value. While it is true that offshore trusts can often be more expensive to set up than onshore trusts, the administration of an offshore trust is virtually identical to that of a domestic trust and also offers significant advantages.
When one considers the costs of litigation, along with the potential losses associated with frivolous and contingency-based lawsuits, the value of asset protection afforded by these modern problems becomes apparent. Moreover, as privacy concerns grow amid a shifting landscape of technology and regulation, offshore trusts provide greater protection for private financial affairs and prevent that information from becoming public or falling into the wrong hands. For high-net-worth individuals, offshore trusts offer a stronger layer of asset protection than domestic trusts because they provide access to banks and custodians with higher capital adequacy requirements than those found in the United States. Additionally, offshore trusts offer other benefits, such as access to foreign currencies and highly skilled money managers and advisers focused on protecting the hard-earned wealth of individuals.
Working with experienced professionals who can guide you through the setup and management process can help minimize costs and maximize the perks of having an offshore trust. Planning and creating a trust should be viewed as part of a long-term, often generational, process of building and protecting wealth. Holding assets within the right type of trust vehicle can far outweigh the costs over the typical time frame that a trust remains in effect.
Myth No. 3: Offshore trusts present greater risks than domestic trusts
Another common misconception about offshore trusts is that they are riskier than their domestic counterparts. This misunderstanding is usually due to a lack of familiarity with the legal framework in offshore jurisdictions, as well as a lack of awareness of the risks that domestic trusts are exposed to.
The popular jurisdictions for offshore trusts have strict legal and regulatory frameworks that help protect your assets and provide greater transparency and accountability than many trusts created domestically. The robust legal systems and regulatory frameworks of these jurisdictions help minimize the risk of fraud, embezzlement and other types of financial crime.
When establishing an offshore trust, it’s important to work with the right professionals who have a deep understanding of the legal and regulatory landscape in the offshore jurisdiction. These experts can also help you mitigate risks to ensure that your offshore trust is not only set up but also managed in a responsible and secure manner.
Myth No. 4: Offshore trusts are cumbersome to set up and manage
Another common fallacy about offshore trusts is that they are too complex to realistically manage. While it is true that offshore trusts can be more complex to set up than onshore trusts, that is not always the case. Working with reputable trust companies that have extensive experience and adept client service can help simplify the process and provide ongoing support and management services that help you navigate the legal and regulatory landscape and tailor the trust services to your planning needs.
Myth No. 5: Offshore trusts are used by only the elite or James Bond-esque criminal masterminds
When creating an estate plan or securing our assets, we often dismiss offshore trusts as an option because we imagine that offshore trust products are used for only nefarious purposes, like money laundering or to hide the ill-gotten assets of criminal enterprises. But that’s simply a falsehood. Offshore trusts are established every day by many normal, law-abiding individuals and families for legitimate purposes, such as tax planning, asset protection and estate planning.
Additionally, offshore trusts are not just for billionaires. While it is true that some offshore trusts require a significant amount of assets to be established, many offshore trusts are accessible to individuals and families of more modest means. For example, some offshore jurisdictions have low minimum investment requirements, making them accessible to a wider range of investors.
In fact, offshore trusts can be an effective tool for middle-class families who want to protect their assets and ensure that their financial affairs are managed in the best way possible. With a dependable and growing industry of offshore-trust companies, most individuals and families can set up and manage offshore trusts in an affordable way to help protect their assets and meet their estate planning needs.