Welcome to CPA at Law, helping individuals and small businesses plan for the future and keep what they have.

This is the personal blog of Sterling Olander, a Certified Public Accountant and Utah-licensed attorney. For over nine years, I have assisted clients with estate planning and administration, tax mitigation, tax controversies, small business planning, asset protection, and nonprofit law.

I write about any legal, tax, or technological information that I find interesting or useful in serving my clients. All ideas expressed herein are my own and don't constitute legal or tax advice.

Irrevocable Trust Planning

Individuals with substantial assets can utilize a number of techniques to minimize gift and estate taxes. These techniques include making lifetime transfers of assets using irrevocable trusts. This post will describe some of the irrevocable trust planning techniques for income-producing assets. Such trusts will name an "income beneficiary," who will be entitled to the income generated by the asset and a "remainder beneficiary," who will be entitled to the asset itself after a defined period of time.

One way to classify such trusts is by how the income of the income beneficiary is calculated: In general, income is calculated as either a fixed amount (an annuity) or as a fixed percentage of the net fair market value of the trust assets (a unitrust amount). Another way to classify these trusts is whether they involve a charitable beneficiary. Finally, with respect to charitable trusts, the charitable beneficiary can be either the income or the remainder beneficiary. These different trusts can be described using the following chart:

 Annuity Income   Unitrust Income 
 Charitable Lead Trusts (CLTs)   Charitable Lead Annuity Trust (CLAT)   Charitable Lead Unitrust (CLUT) 
 Charitable Remainder Trusts (CRTs)   Charitable Remainder Annuity Trust (CRAT)   Charitable Remainder Unitrust (CRUT) 
 Grantor Retained Trusts (GRTs)   Grantor Retained Annuity Trust (GRAT)   Grantor Retained Unitrust (GRUT) 

In summary, a CLAT and a CLUT both provide a charity with income for a period of time, in the form of an annuity or unitrust amount respectively, with non-charitable beneficiaries receiving the remainder interest when the income period ends. A CRAT and a CRUT are similar, except that the charitable beneficiary receives the remainder interest at the end of the income period, during which either an annuity or unitrust amount is paid to non-charitable beneficiaries. Finally, a GRAT and a GRUT provide for both an income interest and a remainder interest to non-charitable beneficiaries. Future posts will discuss the situations in which each of these trusts are typically used.

Social Security Planning

Normally, in planning when to apply for social security benefits, it makes sense (assuming you expect to live a long time) to delay applying. However, for some married couples, the "file and suspend" strategy results in greater benefits, even though it runs somewhat counter to the normal strategy. According to the Social Security Administration,
If you and your current spouse are full retirement age, one of you can apply for retirement benefits now and have the payments suspended, while the other applies only for spouse's benefits. This strategy allows both of you to delay receiving retirement benefits on your own records so you can get delayed retirement credits.
The practical effect of this technique is explained by the AARP in the following example:
John and Mary, a married couple... are 66, which is their full retirement age. Mary is retired; John plans to keep working until he is 70.

At 66, John, who had a bigger income than Mary over the course of his career, files for his full retirement benefits of $2,000 a month, but immediately suspends payment. By doing that, he will begin accruing delayed retirement credits: For each year that he keeps his payments in suspension, they'll be 8 percent higher when he does take them. The credits top out at age 70. Since John's basic retirement benefit at age 66 was $2,000, his new payment if he waits until 70 to collect will be about $2,640, plus any cost-of-living increases.

When John filed for his benefits, he automatically activated Mary's ability to apply for a spousal benefit... equal to up to one-half of the other spouse's retirement benefit. So Mary can collect $1,000 a month [without even] taking her own retirement benefit...
This means that the couple in this example receives $12,000 per year without receiving any retirement benefits on their own record, which they will start doing at a later date. This is an example of how the wrong strategy for collecting social security benefits can mean the receiving tens of thousands of dollars less than would otherwise be possible. Just as an attorney should be consulted for estate planning or other legal questions, a financial planner with social security expertise should be consulted when planning for retirement.