It’s unbelievable that families still pay estate tax. Estate taxes are voluntary as there are many ways to avoid them. Yet, every year, IRS collects billions in estate taxes from families whose parents did nothing to eliminate the tax.
One reason some parents will not act is because they are advised to shrink their estate through gifting. This gifting obviously removes assets from the parent’s estate (making the parents poorer) and thereby lowers the value of the estate and estate taxes.
Parents often resist gifting for fear of giving up the assets, losing the liquidity and maybe someday needing those assets. Well there’s a way for parents to have their cake and eat it too. It’s called the WRAP Trust™ (WRAP stands for Wealth, Retirement and Asset Protection). The investor deposits a sum with an annuity company. That company agrees to pay a monthly amount for life, or a lesser amount to continue over the life of both spouses. The investor is provided with an income he cannot outlive. Such an investment is useful for investors requiring income, for qualifying for Medicaid (immediate annuities can be treated as an exempt asset), for making lifetime payments to cover long term care needs or for paying long term care insurance premiums.