Bill and Hillary Clinton are worth an estimated $45 million. Since today’s exclusion from estate and gift taxes is $5.45 million each, that leaves them well into taxable estate territory. If they died without significant planning, they would have $45 million, less $10.9 million in exclusions, for $34.1 million subject to tax at 40%. They would owe $13.64 million in estate tax at the death of the survivor of them.
Bill and Hillary are smart people. They are doing estate planning and are using a common advanced technique called Qualified Personal Residence Trusts or “QPRTs.” Here’s a link to a story about the Clintons and their wealth.
With a QPRT, the client gifts their residence into an irrevocable trust. They retain the right to use the home for a specified period of time. Then, at the end of that time, the home goes to the remainder beneficiary (which may be a trust).
This strategy works well, especially if the home is appreciating in value at faster than the interest rate assumed by the IRS. The home itself is removed from the client’s estate, as long as the client survives the initial period of use set by the client.
The client can increase the estate tax savings by splitting the house into two or more QPRTs, like the Clintons did. By splitting the house, they can take a discount on the valuation of the house. Half a house is not worth one-half of a whole house. Why? What would you pay for half a house you had to share occupancy with someone else?
It is common to have one spouse put half the house into one QPRT and the other spouse put the other half the house into the other QPRT. This appears to be what the Clintons did. This makes a great deal of sense because if one of them dies, the other QPRT is not affected. It is also common to have more than one QPRT for each spouse. Let’s use a quick example. Let’s say that a couple sets up two QPRTs each, one for 5 years and one for 8 years. Let’s say husband dies after 6 years and wife dies after 9 years. Three of the QPRTs in that scenario would have worked as planned, both of the wife’s and the 5-year QPRT by husband. The 8-year QPRT by husband would have come back into the husband’s estate harmlessly.
Thus, the Clintons have demonstrated their savvy in utilizing a sound advanced estate planning technique.
Stephen C. Hartnett, J.D., LL.M.
Associate Director of Education
American Academy of Estate Planning Attorneys, Inc.
9444 Balboa Avenue, Suite 300
San Diego, California 92123
Phone: (800) 846-1555
www.aaepa.com
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