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Planning Your Estate? Take a Cue from the Clintons to Protect Your Assets

estate planning nutley nj

Democratic presidential candidate Hillary Clinton has been both criticized and praised for her meticulous planning, cautious attitude and practical approach to problem solving. When it comes to financial matters, there’s no denying that these three qualities are beneficial.

estate planning nutley njIn Clinton’s most recent financial disclosure form, it’s clear that the former secretary of state and her husband, former President Bill Clinton, have taken that same detailed, meticulous approach to estate planning. All of that effort will pay off in the future when a portion of their millions of dollars in assets will be protected from estate tax.

The Clintons have set up a carefully-planned series of insurance and property trusts to help protect their assets after they die.

Estate tax is levied on estates with values of $5.45 million or more per person ($10.9 million per couple). Tax rates start at 18% for the first $10,000 above the threshold for each bracket, and quickly shoot up to 40%.

Ironically, Hillary Clinton has advocated for tax reformation, which would levy higher taxes on wealthy individuals. She has proposed lowering the estate tax threshold to $3.5 million and raising the top rate to 45%.

How Much Are the Clintons Worth?

If Clinton had her way with tax reformation, estate taxes would take a bigger bite out of the assets she leaves behind.

Currently, Bill and Hillary hold investments that are valued between $10 million and $50.1 million, according to the most recent disclosure forms. These investments include:

  • $5 million – $25 million in a JP Morgan account
  • $5 million – $25 million in a Vanguard 500 index fund
  • $50,000 – $100,000 in U.S. Treasury notes

Hillary earned $5 million in royalties for her book Hard Choices in 2015. She also took home $1.48 million for speaking engagements. Bill earned $5.25 million for speaking engagements.

The couple’s gross income was even higher in 2014, according to their tax returns from that year. The couple brought home $27.9 million, primarily because they both secured more speaking engagements.

Carefully Planned Residence Trusts

The Clintons are not required to reveal the value of their homes, or their retirement accounts. Reports indicate that real estate makes up a much smaller portion of the couple’s net worth than their investment assets. With that said, the Clinton home is an essential factor in their estate planning strategy.

One smart way the couple is protecting their real estate assets is through the creation of residence trusts. These trusts prevent property value growth from being counted towards the estate, which prevents it from being taxed when passed on to heirs.

Essentially, a residence trust locks in the home’s value at the time when it’s transferred into the trust. The home’s ownership is transferred to the trust, and a beneficiary is named. Once the trust expires, the home is transferred to the beneficiary. The value of the estate is calculated using the home’s earlier value.

Since 2010, Bill and Hillary Clinton have set up two trusts, in which they have transferred the ownership of their Chappaqua, N.Y. home into. If the home continues to appreciate in value, which it likely will, the estate may save hundreds of thousands of dollars in estate taxes.

The Clintons purchased the home in 1999 for $1.7 million. As of 2015, the home had a value of $2.3 million.

To reduce the home’s value even more, the Clintons also took steps to divide ownership of the home into 50% shares. Each share has its own trust, according to property records.

The division of shares reduces the property’s value even more – 15%-30%, according to some advisors.

The Clintons also own another property in Washington, D.C. with an estimated value of $5.76 million, but that property has not been put into a trust.

Smart Life Insurance Trusts

Disclosure records also insinuate that life insurance plays a key role in the Clintons’ estate planning strategy. In this case, life insurance trusts are used as a way to minimize estate taxes and pass large sums of money to heirs tax-free.

Bill and Hillary hold five life insurance policies with a combined value of $1.28 million to $2.6 million.

While the disclosure does not indicate what the death benefit for each policy would be, financial experts say it will likely be far greater than the cash value.

Advisers say couples with such high net worth, like the Clintons, have no need to invest in life insurance unless the goal is to transfer assets outside of the estate.

Three policies are in Bill’s name, while Hillary has two in her name. Two of the three larger policies have cash values between $500,000 and $1 million. The three large policies are held in individual irrevocable life insurance trusts.

Life insurance payouts aren’t typically taxed as income, but the Clintons have shielded this asset even further by placing it in individual trusts, which do not count towards their estate.

Moving these policies into trusts also allows heirs to use that money to pay estate taxes that will be owed, rather than having to sell assets.

No matter your opinion on the political level, the Clintons have undoubtedly employed careful strategies when planning their estate to protect their assets. By taking a similar approach, high net worth individuals can minimize the amount of estate taxes paid by heirs, which means more assets make it into the hands of family and loved ones after death.

The Micklin Law Group, LLC is a New Jersey law firm focusing on family law. Attorney Brad Micklin was recently named to The National Advocates list of Top 100 attorneys from each state. Brad has experience working with wills, trusts & estate planning. You can read more on this topic by visiting our estate planning blog. To set up a consultation, call 973-562-0100.

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