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Tax Planning Strategies

Tax Planning Strategies

Consider the impact of a 50% estate tax on your family’s inheritance

There have been significant changes in estate and gift tax laws. The amount you can pass without incurring federal tax to your children and grandchildren will be $5 million, indexed annually for inflation. The amount for 2017 is set at $5.49 million. In Massachusetts estates above $1,000,000 remain subject to the Massachusetts estate tax. Married couples with the right type of trust and funding may double the tax free amount to $2 million. This is not automatic so its important to make sure you create and maintain the proper estate plan.

When you look at your projected estate tax amounts with even modest growth, the federal and state estate tax can be quite significant with a combined rate of 50%. While growth in the value of your assets is good, it creates a big tax problem. Caution: Massachusetts continues to tax all estates above $1 million. If you start now, however, you have time to take steps to avoid this significant tax problem from eroding your family’s inheritance.


Consider also that you may already have an estate tax problem.The combination of the MA applicable exclusion (the tax free amount), only $1 million in 2017, and an increase in value of your investments and other assets can create a major tax problem. It is important to be aware of this and begin implementing a plan to increase the gift and estate tax free amounts for your family members.


Most people do not wish to pay any more in taxes than absolutely necessary. Given a choice, they would prefer to provide for their children, grandchildren, or even causes that are important to them. Saving taxes and benefiting your family is a matter of acting on the choices you have.For those with a large estate, there is a window between now and the end of the year to gift up to $5.49 million, free from any gift or estate tax.

Gifting programs to children and grandchildren can allow you to reduce a taxable estate by $14,000 per year, per child or grandchild, $28,000 each for a married couple, which provides $280,000 tax free over a ten year period. If you have three children and they each had two children, that’s over $3 million dollars that can provide a substantial estate tax savings.


Parents or grandparents can also use gifting to fund the college education of their children or grandchildren. With a tax advantaged 529 Plan you have the opportunity to pre-fund an education with $70,000 in the first year, five years worth of gifts, without losing control of the money if your child or grandchild chooses not to pursue higher education. A grandparent can fund a 529 Plan without compromising their grandchild’s eligibility for grants and scholarships. 529 Plans have the added benefit of income and capital gains tax free growth as long as the funds are used for qualified tuition expenses. The sooner you start, the greater the savings.

Gifting should be done annually as the opportunity is lost as each year goes by. Therefore it is critical to evaluate your situation now to see if there is a potential tax problem and if so, take steps to reduce or eliminate it as soon as possible.

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Tax Planning with Retirement Accounts

The economic principles that make deferring distributions from a qualified plan or IRA advantageous during the participant’s lifetime apply equally well after the participant’s death. In planning for the distribution of qualified plans and IRAs after death, structuring the beneficiary designation and distribution options to maximize income tax deferral should be a primary objective. The difficulty is how to achieve estate tax minimization and deferral at the same time. One planning strategy that you may consider is a “stretch.”

“Stretch” Distributions and IRAs

The “stretch” is not a financial product, but a planning strategy that allows for the deferral of tax on the assets accumulated in the qualified plan or IRA. This is done by allowing the required minimum distributions to be stretched out over the owner’s lifetime and possibly the beneficiaries’ lifetimes, before all the assets are required to be distributed. Thus, a “Stretch” Distribution or a Stretch IRA is simply a qualified plan or IRA that is eligible to be distributed over a long period of time after death. For income tax deferral purposes, you want post-death distributions from a qualified plan or IRA to qualify for a Stretch Distribution or as a Stretch IRA. This is accomplished by making sure that the plan or account is payable at the participant’s death to a Designated Beneficiary.

Family Limited Partnerships

The Family Limited Partnership, or FLP  is designed to reduce the value of your estate for estate tax purposes while allowing you to maintain full control of the investments and assets inside the partnership.

FLPs are established much like traditional limited partnerships. There are two parties involved: the general partners, who control the trust, and limited partners who have a share in the profits (but no control). The general partners (often, you and/or a spouse) design the partnership to give limited partnership shares to family members. General partners control the operations of the FLP and make day-to-day investment decisions. They can also receive a percentage of the FLP’s income in the form of a management fee.

Limited partners (your heirs) have an ownership interest in the FLP, but they have very limited control. They share in the income generated by the FLP, depending on how many shares they own. When the FLP is dissolved, a proportionate amount of FLP property will pass to each limited partner.

Setting Up a FLP

FLPs have come under increased IRS scrutiny in recent years, so you should work with a reputable estate planning attorney. With the attorney’s assistance, you can place your assets within the FLP using your estate tax credit. For instance, a husband and wife can each transfer up to $4,000,000 into the FLP and allocate those assets to the limited partnership. There are usually no taxes incurred when funding a FLP with your assets.

In the beginning, you and your spouse (or trusts) own both General Partner and Limited Partner shares. Over time, you gift to your heirs Limited Partner shares using your annual $13,000 gift exclusion, possibly utilizing a discount of up to 40% depending on the opinion of a professional appraiser. Don’t worry about giving away too much of the shares. Based on current tax law, the General Partners may own as little as 1% of the FLP’s assets and still retain control. That means you can still buy and sell assets, dispose of property, and declare any distributions of FLP shares.

Tax Planning with Family Limited Partnerships

Protection Against Creditors

Because of their lack of control, LP shares are most undesirable to creditors. Creditors will find it difficult to seize limited partner shares, since they are not publicly traded. They can also be faced with paying taxes on income created by ownership of a “charging order.” Creditors also don’t want to pay tax on income they don’t receive. If the partnership has earned income, but the general partner does not declare a distribution, each general and limited partner is required to report a proportionate share of the earned income on his or her personal tax return, without actually receiving any dollars with which to pay the tax.

Two More Advantages of FLPs

FLPs are considered an “intangible asset” – most likely, only the state of your domicile will be able to impose any inheritance tax on Partnership units. This is ideal for real estate investors owners who own property in several states.

FLPs can provide additional retirement income – as mentioned previously, FLPs can provide general partners with management fees. This fee reflects the work you do as the general partner to maintain the FLP as a working business and is considered earned income.

Family Limited Partnerships involve significant costs and risks involved, and are not ideal for highly appreciated assets. FLPs must also be drafted by an experienced estate planning attorney, and have a tangible business intent. For this reason, we strongly urge you to consult with a professional with specific expertise in this area.

What Our Clients Experience

  • C.C. Dedham, MA

    My daughter was acquainted with Greta Atchinson, so when I had a need I naturally went to them. Both Greta and Dennis Sullivan have treated me wonderfully well! I’ve been very satisfied with the trust they did for me. Greta and Dennis were polite, caring and compassionate. They were very well prepared and helpful. I never felt rushed. I knew I needed to do something but didn’t know what. It was a great decision to go there. They were of tremendous help! Plus as a member of their Lifetime Protection Program I know they’re looking after me, plus whenever I have a question I can call them. I would absolutely recommend their services.

  • Mary McKernan, Needham, MA

    I’m extremely satisfied with the work that was done for my husband and me. Greta and the entire staff are always very helpful and nice. I’d initially found out about the Dennis Sullivan law firm when I was getting ready to retire and received a flyer from the state of Massachusetts that had various information on it. They are great people to know! We go in once a year now for a check-up that they provide. This keeps us very well informed about any developments, plus they answer all of my questions. The Sullivan group gets my highest recommendation!

  • C.B. Wellesley, MA

    We’re very pleased with the estate planning work that was done for us. My husband and I were very comfortable using their services. We originally went to one of their seminars, liked what we heard, and then came in for a consultation. I would definitely recommend going to see the people at Sullivan and Associates!

  • Mike McInerney, Framingham MA

    These people get things done! They got results in a number of different areas for me, such as estate planning, plus they’re still working with me and the state of Massachusetts in some matters involving my late wife. I first became acquainted with the Estate and Asset Protection Law Center of Dennis Sullivan & Associates a few years back. I’d seen an ad in the newspaper and went to one of Dennis’ free seminars, and then booked a consultation with him. He is very informative! Everyone there is very friendly, knowledgeable, and helpful. They are very accommodating people who get things well taken care of. I highly recommend their services!

  • J.S., Boston, MA

    I’m pleased to say they are my law firm! They’ve been very helpful to me over the years. I especially like the fact that they do a yearly check on all of my legal documents. This is a very viable service because things can change over time, and it’s good to know that I’m always current. This is very important, and I appreciate that they do this. These people do good work; they do things right!

  • H.S. Concord, MA

    Everything has gone fine. We first became familiar with the Sullivan Law Firm when we attended one of their seminars, and then made an appointment to come in for a consultation. We’ve been clients ever since. I appreciate that they continue to do a yearly review for us and advise us if we need to make any changes. As the saying goes, it’s good to have your ducks in a row! Everyone there has treated us wonderful. They are a very good group of people.

  • Noel Thyson, Winchester, MA

    I’m very satisfied with what the legal staff has done for me. Interestingly, an attorney I was using for another matter wound up recommending the Estate Planning and Asset Protection Law Center of Dennis Sullivan & Associates. I like the fact that they provide you with useful information, and quick answers. They treat you with dignity and respect. I highly recommend you go see them.

  • Matt DePalo, CPA., Natick

    The experience has been excellent. I am extremely satisfied with the Lifetime Protection Program.

  • I.C., Framingham

    The team at Dennis Sullivan & Associates is very helpful and knowledgeable. Everyone is pleasant and easy to do business with. I don't feel uncomfortable coming in. I interviewed four other attorneys...I'd rather come to you.

  • E.L., Lynn

    Thank you, Dennis, for your expert and caring assistance you have shown to me and my family. It was a trying and confusing process that needed a pro to guide us.

  • C.&J. K., Hopedale

    Thank you for all your hard work and dedication. We appreciate the promptness with which you handled our difficult situation.

  • B.S., Wayland

    We have told friends of our experience with Dennis Sullivan & Associates. We feel it has been very positive and beneficial.

  • Andy St. James, Holliston

    Dennis provided strong direction and guidance in developing and implementing a lifetime protection plan.

  • D.M. Framingham, MA

    We were very comfortable working with you and thank you for your patience in educating us about a process which frankly was quite foreign to us. We are pleased with the outcome and are pleased to recommend you to friends.

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