Guiding Your Family’s Future with Tax Planning Solutions
At Stuart Green Law, we focus on income and estate tax planning to help protect and grow our clients’ wealth. Understanding the importance of minimizing tax impacts on estates, we offer strategies such as trusts and gifting to reduce estate taxes and enhance wealth transfer to future generations. Additionally, we take advantage of South Dakota’s favorable tax laws, which can provide significant savings and benefits across multiple generations. Whether you’re dealing with the sale of a business, asset appreciation, or planning for your family’s financial future, Stuart Green Law is here to help navigate you through the process of income and estate tax planning.
Estate Tax Planning
Estate tax planning solutions are designed to ensure your assets are not unnecessarily taxed. A comprehensive tax plan will ensure your estate is structured in a way that reduces estate tax and maximizes your wealth as you pass it along to future generations.
- Installment Sale to Intentionally Defective Grantor Trusts
- Grantor Retained Annuity Trusts
- Spousal Lifetime Access Trusts
- Irrevocable Life Insurance Trusts
- Gifting Strategies
- Valuation discounts and freezes
South Dakota Income and Estate Tax Planning Opportunities
South Dakota does not have a personal state income or capital gains tax. Additionally, there is no tax on trust income either. South Dakota’s lack of state income tax can result in substantial tax savings and wealth appreciation that extends over multiple generations.
State Taxation of Trusts
Undistributed trust income retained in a trust is typically taxed in most states at the applicable income tax levels of that state. However, using a trust in a state that does not have an income tax, such as South Dakota, provides the opportunity for trust assets to grow free of state income tax over multiple generations.
A Resident Trust is a trust with situs and trust administration in a jurisdiction other than where the settlor, beneficiaries, or co-trustees reside. The United States Supreme Court and state courts across the nation have held that it is unconstitutional (violation of both the Commerce Clause and Due Process) for a state to tax undistributed, non-sourced trust income in a resident trust.
- In Kaestner, the Supreme Court struck down North Carolina’s attempt to tax undistributed income of a Resident Trust properly used and administered in a no income tax state. (Domicile of beneficiary not sufficient to establish nexus for taxation.)
- The Supreme Court denied cert in Fielding, upholding the Minnesota Supreme Court’s decision also striking down that state’s attempt to tax undistributed trust income within a resident trust. (Domicile of settlor not sufficient to establish nexus for taxation.)
- Pennsylvania, Minnesota, and New Jersey each have appellate court case law, indicating that taxing undistributed income in a resident trust is a violation of the Commerce Clause of the United States Constitution and Due Process.
- Supreme Court and state appellate case law makes a strong case for the movement of existing trusts into states no state income tax.
Community Property Spousal Trust
The South Dakota Community Property Spousal Trust may be created by one or both spouses with both spouses as beneficiaries to avoid taxation, because it treats the property as community property at the death of the first spouse, applying a 100% step-up in basis at the date of death of the first spouse. Neither spouse has to be a resident of South Dakota to take advantage of the Community Property Spousal Trust.
In non-community property states, the step-up in basis at date of death is only 50%, which means that taxes would be owed on the remaining 50% of the cost basis of the marital property when sold.
Dynasty Trusts
A South Dakota Dynasty Trust is a very powerful planning tool that preserves family wealth over generations because it avoids federal estate taxation in perpetuity. South Dakota law allowed for the first Dynasty Trust in the nation in 1983 by abolishing the Rule against Perpetuities. Therefore, unlike many states that have merely amended the Rule against Perpetuities to extend the time when a trust must terminate, the South Dakota Dynasty Trust avoids federal wealth transfer taxation on trust assets forever because there is never a termination of the trust resulting in a distribution of trust assets that are subject to estate and generation-skipping tax.
Incomplete Non-Grantor Trust (ING)
An Incomplete Non-Grantor Trust (ING) potentially eliminates state income/capital gain tax while taking advantage of Domestic Asset Protection.
When to Use the Incomplete Non-Grantor Trust
- Assets with significant appreciation, such as low cost basis stock or other assets.
- Selling a closely held business
- Live in a state with high income tax
Example of the Tax Savings Associated with an Incomplete Non-Grantor Trust
- Closely held business with fair market value significantly over basis with a gain in excess of $20 million.
- Transfer of closely held stock into an Incomplete Non-Grantor Trust created in jurisdiction with no income tax.
- No gift tax consequence.
- Assuming the home state has a 6% income tax rate = $1.2 million state tax savings.
- Assuming an estimated future investment portfolio of $16 million earning a conservative 4% undistributed total return, continued state tax savings of $38,400 per year.
Get in Touch Today
Stuart Green Law stands at the forefront of income and estate tax planning, dedicated to safeguarding and enhancing the wealth of our clients. Through our strategic approaches, we aim to reduce your estate’s tax liability and ensure a seamless transfer of wealth across generations. Our commitment is to provide you with a structured plan that not only minimizes taxes but also maximizes the growth and preservation of your assets. If you’re looking for professional guidance to secure a prosperous future for your family, our firm is ready to assist. Let us help you take advantage of these opportunities to protect your legacy and ensure your wealth serves future generations as you intend.