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It’s true
that you can’t take it with you, but many are becoming more
concerned about what happens to what they leave behind.
Thanks to some recent changes in estate laws, strategies
that were once only doable by the extremely wealthy are now
more accessible by those of more modest means. Read on to
see if you can take advantage of these estate planning tools
and create a living legacy for your family.
Wealthy families have long used various trusts to increase
their fortunes and help shield their assets from excessive
taxes. States limited how long these trusts could last,
making the managing of these fortunes costly and difficult.
But thanks to the actions taken by several states to remove
time limitations, now you can create a dynasty trust that
can last forever.
Dynasty trusts have several main advantages. Primarily, they
keep your hard-earned nest egg from being eroded by estate
taxes. Normally, wealth transferred from generation to
generation is subject to estate taxes. Over time, large
portions can be lost to taxes. This money is preserved in a
dynasty trust.
They also protect your assets from creditors, bankruptcy and
divorce proceedings. For instance, let’s say your son is a
doctor and you leave him a large inheritance. Should he be
sued by a patient, those assets couldn’t be touched by the
plaintiff if those assets were in a dynasty trust. The same
would be true if that son got a divorce. His ex-wife
wouldn’t be able to demand a share of the assets in the
trust.
We’ve all heard of the problems with trust-fund kids, where
the vast wealth left to them takes away their incentive to
achieve their own success. That is easily prevented using
incentives to encourage your heirs in ways that match your
morals and values. For instance, you can withhold funds
until a grandchild has earned a college degree.
Dynasty trusts are best suited for those who have at least
$500,000 to $1,000,000 in excess of what they need to
continue living comfortably. They cost between $5,000 and
$10,000 to create and professional trustees usually charge
about 1% a year to mange them.
You don’t have to have a million bucks in cash lying around.
Real estate, such as rental property, personal residences or
vacation homes can be put into these trusts. When planned in
advance, they can be set up at your death which allows the
use of life insurance to fund the trust. The use of life
insurance places these trusts within the reach of many
people.
These trusts can last for hundreds of years, so it’s
important to write them as carefully as possible. These
trusts cannot be changed so they need to be carefully
planned. Provisions to change trustees and end or split the
trust should be included to allow future generations
flexibility to deal with changing laws and situations.
The income from the trust can be paid to beneficiaries each
year. In that case, the income is taxed based on each
beneficiary’s tax bracket. Any income not distributed from
the trust each year is taxed at the trust level where tax
rates could be higher.
Dynasty trusts can benefit heirs in many ways. For instance,
the trust could own personal residences or vacation homes
for the heirs. This provides them a financial benefit, but
since the properties are owned by the trust they are beyond
the reach of the heirs creditors. This protects those assets
for future generations.
If your own children don’t have a need for your assets and
you want to pass them on to your grandkids and beyond,
dynasty trusts allow you to do that without being subject to
generation skipping taxes. If you don’t want to see your
hard-earned wealth eaten away by Uncle Sam, a dynasty trust
could be just the ticket. So even though you can’t take it
with you, you can help provide for generations to come and
even pass on some of your values as well.
An Estate Planning Attorney who has experience designing
Dynasty Trusts should be consulted. He or she will be able
to answer specific questions and help you decide if a
Dynasty Trust is right for you.
Questions? Concerns? I’d be happy to provide clear, unbiased
advice free of charge.
Mr. Voudrie is a Certified Financial Planner and the
President of Legacy Planning Group, Inc., a Private Wealth
Management firm in Johnson City, TN. For more information
call 1-877-827-1463 or email
jeff@guardingyourwealth.com.
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