The phrase “frozen assets” is one that strikes fear into the heart of many a wealthy citizen… Yet, for investors interested in protecting and passing on their wealth, there is a way to re-appropriate the concept of “frozen assets” in a beneficial and advantageous way.
There are few things more annoying to a savvy investor than an asset that just sits and sits with no hope for growth. In fact, an investment without growth is antithetical to the concept and a “frozen asset” means a rigidity that refuses to move with the market. However, if you are investing in your family and creating a powerful estate plan, there are some times when capping or transferring growth and, yes, even “freezing” assets is a definite boon.
The concept of asset freezing, at least as it pertains to estates and estate planning, was illuminated nicely in a recent Forbes article titled “Freeze Your Assets To Save On Taxes.” This concept of “freezing assets” is a useful but often complex concept to explain. The principal is fairly clear, however. You see, more often than not, you want to pass along valuable assets to the next generation, especially assets on the order of a small business. Unfortunately, the more valuable the asset the more tax liability it likely will trigger, especially if the estate tax threshold is surpassed after a period of unexpected growth. On the other hand, if you transfer future growth from your own potential estate tax equation or even divert it to your heirs now, then you may avoid an estate tax catastrophe later. The question is of course, how does one do that?
Well, first you must assess what your assets and investments are. A small business formed as a corporation may have to be treated differently than an LLC. Perhaps you only own investments in public companies rather than your own. Exactly how you structure your assets can be beneficial to the success of the planning.
When it comes to estate planning strategies, a Grantor-Retained Annuity Trust (GRAT) or an Intentionally Defective Grantor Trust (IDGT) may be worth considering to freeze and transfer your assets. There are many processes to explore should your assets, their growth, and your estate plan all begin to bump into the estate tax ceiling. There is no time like the present to evaluate your options and set a course to efficiently avoid the tax man and transfer more wealth to our loved ones.
You can learn more about this topic as well as other strategies on our website under the tab entitled: estate planning in Virginia. Be sure you also sign up for our complimentary e-newsletter so that you may be informed of all the latest issues that could affect you, your loved ones and your estate planning.
Reference: Forbes (March 5, 2014) “Freeze Your Assets To Save On Taxes”