The Trust Lawyers Blog

Dynasty Trusts

Posted by Dave DePinto on Fri, Jul 15, 2016

Dynasty Trusts

In the early 1900's, a handful of industrialists and entrepreneurs had amassed tremendous fortunes. John D. Rockefeller had made his name in oil, Henry Ford in automobiles, Carnegie in steel. Their estates, in today's dollars, would rival those of Bill Gates and Warren Buffett.

As these visionaries aged, most of them asked a handful of lawyers the same question: "What can I do to preserve my estate?" They knew that when they died, their estates would be heavily taxed when passing to children, and would shrink even more when going to grandchildren.

Using some of the most tax-savvy minds in the country, some of the most successful families created a separate trust... a legal entity designed to provide substantial assets to future generations, with little or no estate taxes. What they did, in the process, was create the "Dynasty Trust."

 

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Tags: trusts, Dynasty Trusts, Estate Planning, Elder Law

Trusts 101

Posted by Dave DePinto on Mon, Jun 13, 2016
I. CHARITABLE DEDUCTION PLANNING

 

a.Charitable Gifts: Gifts to qualified charities are income tax deductible.  In addition, the charitable component of a split interest trust (one where a portion of the trust has a charitable beneficiary, and another portion has a non-charitable beneficiary) is a reduction of total taxable gifts made during the year.  The deduction is unlimited as long as the gift is made without restrictions on the use of the property donated. Qualified charities include any corporation organized for religious, charitable, scientific, literary or educational purposes.  In addition, a charitable gift to the donor’s own private foundation qualifies for the deduction. 

 

b. Charitable Remainder Trust: A charitable remainder trust (CRT) is an irrevocable trust (an example of a split interest trust) to which the grantor contributes assets retaining a stream of income for either a term of years or for life, with the remainder passing to charity at the end of the term. The grantor is allowed an income tax deduction for the present value of the remainder interest that passes to charity, and the property contributed is permanently removed from his gross estate. The IRS requires the grantor to take an annual distribution of not less than 5% of the trust’s value.  The present value of the charity's remainder interest must be at least 10% of the trust's original value in order to ensure that the charity will receive some benefit at the end of the term. The duration of the trust may be a term of years not to exceed twenty (20), for the life of the donor, or the life of the donor and his survivor.

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Tags: Estate Law, Revocable Trust, Dynasty Trusts, Estate Planning, Residence Trust, Elder Law, Charitable Remainder Trust, CRAT, CRUT

Taxation Of Trusts

Posted by Dave DePinto on Fri, Jun 10, 2016

1. Simple Trust: A simple trust requires all income to be distributed annually to named beneficiaries. Income of the trust is taxable to recipient.

2. Complex Trust:   A complex trust does not require all income to be distributed annually. The trust provides that income may be distributed to beneficiaries or accumulated.   Income of the trust is taxable to recipient to the extent distributions are received.

3. Grantor Trust:  A grantor trust is a trust in which all items of income, gain, loss or deduction will be reported on the grantor’s personal income tax return.

 

 

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Tags: Estate Law, Dynasty Trusts, Estate Planning, Life Estates, Asset Protection

How to Spread Wealth Over Generations & Never Pay Tax With Dynasty Trusts

Posted by Dave DePinto on Tue, Mar 27, 2012

If you have a large amount of wealth and are planning for the future of your estate, you probably want to ensure that the largest possible amount can pass to your descendants. Unfortunately, estate taxes can be punishingly high. Currently the top estate tax tier is 35%, and unless Congress acts soon, in 2013 that will rise to 55%. That's potentially over half of your wealth gone, before your family sees it. For those interested in avoiding this fate, dynasty trusts are a possible answer.

A dynasty trust is a form of irrevocable trust where the grantor (that's you and possibly your spouse) transfers a large portion of wealth into a trust, to be overseen by a trustee. Under current 2012 rules, you and your spouse can both contribute up to $5 million dollars each tax-free. There are further, more complex methods of transferring additional assets at substantially reduced tax rates that your financial adviser may be able to help you consider. The funds can be transferred either while you are alive or upon your death, although for long-term growth, the former option is better.

Once the trust is established, it can continue to invest its assets and grow in perpetuity, allowing future generations to benefit from it, even ones not yet born. As the grantor, you can set up detailed rules on who is allowed to benefit from it, and under what circumstances. You could, for example, mandate that future generations are not allowed access to it until after they graduate college, to prevent them from becoming “trust fund kids.”

Furthermore, imposing these sorts of spendthrift restrictions will also protect the trust from the beneficiaries' creditors or divorcing spouses. Properly established, a beneficiary cannot give up his claim in the dynasty trust either voluntarily or involuntarily. This makes dynasty trusts a reliable source of income for your descendants for decades and generations to come.

Perpetual trusts are not legal in all states, but several, such as Delaware or Nevada, merely require that the trustee have a presence there, but not the grantor or beneficiaries. Plus, there are few drawbacks, aside from the inevitable dilution of benefits that occurs as the generations pass. With an established corporation as trustee, a dynasty trust could last as long as your legacy.

If you are interested in dynasty trusts, now is definitely the time to act. Besides the real possibility of 2010's tax cuts expiring soon, President Obama's new budget is attempting to end dynasty trusts after 90 years. Trusts established today, however, would still be shielded from those rule changes. If you believe this could be an asset in your estate planning, contact a qualified financial adviser sooner rather than later.

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Tags: Dynasty Trusts, Asset Protection, Minimize Taxes