Clients with a single, high-growth investment asset, such as start up executives and entrepreneurs or basically anyone set to benefit from a liquidity event like a potential sale or IPO.

Planning Option: Incomplete Non-grantor Trusts. These go by many acronyms depending on what state they’re created in, but the most popular state is Delaware, so you’ll usually hear them referred to as DINGs. What such trusts do is separate the state and federal tax liabilities on the asset. You place the asset in trust in a state where income tax is low or non-existent. The asset is then considered a taxpayer of the state in which the trust is in, while the client remains on the hook for all federal income tax. This effectively eliminates all state income tax on that asset prior to its sale. Note, however, that many states (e.g., New York) are becoming hip to this technique and it may not work everywhere.

Basically your average client with a significant investment portfolio but no single high-growth asset.

Planning Option: Book Entry Grantor Retained Annuity Trust (GRAT). With this technique, the planner creates a single-member LLC that holds the stocks in the client’s account. This has the added benefit of allowing all transfers to be recorded electronically in the client’s private company records.

Once this LLC is in place, a GRAT or series of GRATs can be created, each gifted separate classes of company units tracking each stock position. While the functionality of GRATs is a bit beyond the scope of this gallery, here the ability of the client to transfer LLC stock to and from GRATs quickly allows them to either lock in success or restart the process quickly if the value of the stock drops beyond a certain point to limit damage.

The financial advisor and estate planner must work hand-in-hand to make this aspect work well, as it has to be set up in accordance with the client’s overall investment plan. For example, the GRATs can be constructed to reflect sectors instead of individual holdings. Only the advisor can provide this info, so teamwork is imperative.

These clients usually hold assets like commercial real estate, art or large family businesses that are both hard to value and represent significant estate tax exposure. Often the price of continued annual valuations required for such assets is also a major concern.

Planning Option: Derivative GRAT. By gifting the asset in question into a derivative GRAT, whose performance is linked to market positions or options and not dependent on the performance of the asset itself, clients can render the performance of the asset largely irrelevant whole shifting significant value. This setup also conveniently removes the need for continued costly valuations, as they’re now unnecessary. Additionally, because of the GRAT structure, these clients can also restart the GRAT quickly and easily to either lock in success or mitigate damage when stock values drop.

This client is around 40 (the effectiveness of these techniques decreases rapidly as the client ages, with 60 representing somewhat of an unofficial soft cap) and looking to purchase a home worth $10 million or more. This one represents a significant pet peeve for Wareh, as clients or advisors often inform estate planners of the purchase after it’s already happened, which means they missed a huge opportunity. “It’s very frustrating when a client invites me over to his new place and I’m like ‘What are you talking about?’” he explains. “Advisors really need to intervene and bring in an estate planner before the purchase happens.”

Planning Option. Split Purchase Qualified Personal Residence Trust (QPRT). With this technique, the client purchases the home alongside a trust for the benefit of his heirs. The planners calculate the value of the client’s right to live in the house for the rest of his (and usually his spouse’s) life, and pays that amount. The trust for the descendants, who will receive the house on the client’s death, pays the remainder. By doing so, the client effectively purchases the right to live in the house for the rest of his days, while simultaneously shifting the value of the property out of his estate, because the trust is the true owner. And, because everyone involved paid fair market value for the privilege they enjoy (the client for the right to live in the house and the trust for future ownership), there is no gift, so no gift tax comes due on what is effectively a transfer by another name. Again, this technique can not be employed after the purchase is already complete.

Usually Wareh simply recommends donor advised funds for his charitably inclined clients. They’re flexible, easy to set up and shift most of the reporting burden to the charities it donates to. However, some clients want more flexibility (a.k.a. they don’t want to have to make gifts to other charities) and don’t have the taste for the responsibility and bookkeeping involved in creating and maintaining a private foundation.

Planning Option: Foreign Charitable Entity. By setting up a foreign trust or corporation, clients are free to make charitable donations with maximum flexibility and free of IRS regulation. Such an entity is “not subject to normal restrictions,” Wareh notes. “You’re just another non-U.S. person.” This entity is NOT tax exempt (client has to pay taxes levied by the country they're in), but does offer some U.S. tax benefits. It avoids U.S. capital gains tax (except for the sale of real estate) and U.S. income tax on non-U.S. investments. U.S. withholding tax does apply to investment income and U.S. income tax is due if the entity invests in any U.S. operating businesses. It’s also important to note that the initial contributions to fund the entity are subject to U.S. gift tax, so it’s necessary to employ a GRAT or other technique to limit that exposure as well.

Wareh stresses the importance of investigating all foreign client connections, just to ensure that they don’t run afoul of the arcane and punitive reporting requirements for any foreign accounts and assets, gifts from non-U.S. family members or distributions from non-U.S. sources. “If you ever have clients with any connections outside of the U.S., you need to consider the very real possible consequences,“ he notes. However, the client in question here is the U.S.-based child of a wealthy non-U.S. family which, according to Wareh, represents something of a planning bonanza if handled properly.

Planning Options: Wareh considers such a client “a golden opportunity” because non-U.S. family are free to make gifts to the client free from U.S. gift, estate and generation skipping transfer tax in perpetuity. He explains “The sort of benefit you would pay an estate planner a lot of money to achieve for a U.S. client, foreign clients may be able to get basically for free.” Taking advantage of this freedom can potentially eliminate or reduce U.S. income taxes for multiple generations of family members if handled correctly.