"Success brings added complexity to my financial life, and I know that certain tax advantages and legal rights afforded to others are simply unavailable to me and my life partner."
We understand the financial and estate planning challenges you face as an LGBT individual or same-sex couple, and we have the expertise to help you and your loved ones navigate them.
Richard (65) and his partner, Steven (56), live in Illinois and have been in a committed relationship for 20 years. Steven has an adult daughter, Melissa, from a prior marriage. Richard's major assets are RainbowScapes, LLC, his landscaping business ($5 million) and an investment portfolio ($5 million). Richard's immediate goals are:
- To ensure that Steven — who is not financially sophisticated — is well provided for should Richard predecease him;
- To make Melissa, who works at RainbowScapes, his successor at the business;
- To support his favorite charities during his lifetime; and
- To minimize his wealth transfer taxes
Assume Richard has made no prior taxable lifetime gifts.
As a same-sex couple, Richard and Steven do not have the benefit of making unlimited tax-free wealth transfers between them. But during 2011 and 2012, everyone, including LGBT individuals, can make up to $5 million of tax-free lifetime transfers. (The exact amount that can be transferred tax-free depends on what taxable gifts were made in prior years.)
Northern Trust leads with advice:
By leveraging his $5 million gift tax exemption, Richard can transfer substantial wealth to Steven and Melissa — without paying transfer tax. With this in mind, Richard's advisors at Northern Trust suggest he consider a Charitable Lead Annuity Trust for Steven and a Grantor Retained Income Trust for Melissa.
Creative, tax-efficient solutions that fulfill your intent:
- Providing for Surviving Partner and Charities. Working with Northern Trust and his estate planning attorney, Richard funds a three percent Charitable Lead Annuity Trust (CLAT) with $3 million from his individually held investment portfolio. Northern Trust is selected to invest those assets.
Once funded, the CLAT will pay $90,000 ($3 million x three percent) each year to named charities over Richard's remaining lifetime. At Richard's death, all assets distribute to a trust for the benefit of Steven, with Northern Trust named as trustee.
If Richard lives another 25 years and if the trust appreciates at a steady five percent, Steven's trust will be worth $5.9 million at Richard's death. (As trustee, we will manage those assets for Steven's benefit over his remaining lifetime.) However, for gift tax purposes, because of today's low interest rates, the transfer to Steven is valued at only $1.4 million.
- Business Succession. Working with Northern Trust and his estate planning attorney, Richard funds a five year Grantor Retained Income Trust (GRIT) with 49 percent of his RainbowScapes units. During the five year term, Richard is entitled to receive the income, if any, from the trust; at the end of the five year term, Melissa will receive the units themselves. Assume that Richard does not die during the term of the trust.
For gift tax purposes, the value of the gift to Melissa is only $1.3 million. However, if the units actually appreciate ten percent annually, she will receive units worth $2.6 million at the end of the five year term. All that appreciation will be removed from Richard's estate and will not be subject to gift and estate tax.
Value of a holistic approach:
Richard has successfully kept his gifts to Steven and Melissa under the $5 million lifetime gift tax exemption and owes no transfer taxes. He has also achieved peace of mind, knowing his immediate wealth transfer objectives have been satisfied. Northern Trust believes all families deserve peace of mind, and of course that includes LGBT families.
Choose a Financial Partner That Understands the Unique Needs of LGBT Individuals and Same-Sex Couples
You know that success can bring increased complexity to your financial life. As a member of the LGBT community, you also know that certain tax advantages and legal rights afforded to others are simply unavailable. You must take extra steps to achieve your financial goals and ensure your estate wishes are fulfilled.
At Northern Trust, we understand the legal and tax challenges you face. And we have the experience to help you navigate them as you pursue your dreams. As a trusted financial advisor, we collaborate with you, your loved ones and your other professional advisors to help you make the most of your time and money so you have the freedom to focus on what really matters.
Special Considerations for LGBT Clients
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