Irrevocable dynasty or generation-skipping trusts are often used by families seeking to protect assets for many years. A skilled estate planning attorney is needed to draft them properly, building in flexibility to accommodate changes in state or federal taxes, according to a recent article on yahoo! finance, “Avoid these pitfalls with generation-skipping and dynasty trusts.”
The current federal and estate tax exemption of $15 million gives wealthy families an opening to move assets into these trusts now, shielding wealth from the top 40% tax rate, should lawmakers revise the tax code. The trusts are also useful in safeguarding assets from divorce, litigation or an irresponsible heir’s wasteful spending.
Experienced estate planning attorneys know that federal tax exemptions aren’t guaranteed to last forever, so the time to move assets into trusts is now.
Dynasty trusts are among the most commonly discussed long-term wealth-transfer tools in estate planning. They can preserve wealth for multiple generations, reduce transfer tax exposure, protect assets from creditors, and create long-term guardrails to survive long after the original grantor has passed. But if they are not done correctly, they can create administrative nightmares, unintended taxes, and long-term problems.
Discussing the reasoning behind the trusts and explaining how they work with families is critical to their success. If the family doesn’t understand why the money has been secured within a long-term trust, there may be internal conflicts.
Both generation-skipping and dynasty trusts allow heirs to use assets without those assets entering the estate for gift or generation-skipping tax purposes. There are administrative costs and responsibilities associated with trusts, which need to be clarified and understood by all concerned.
The possibility that grandchildren or great-grandchildren will need to navigate federal or estate taxes in the future should be part of the plan. Flexibility for the trustee allows the trust to succeed over time.
Not everyone needs a multi-generation trust. For the average American, trusts are like a Swiss Army knife—there are many different kinds of trusts used to solve a variety of problems. If the family includes a disabled individual, a Special Needs Trust can be created to enhance the person’s quality of life and protect them when parents are no longer living. Medicaid Asset Protection Trusts are irrevocable trusts used to protect assets in anticipation of needing to apply for Medicaid and wishing to protect the well spouse.
Every family’s situation is different, which is why it’s so important to sit down with an estate planning attorney to learn what your needs are for the immediate and distant future.
Legacy One Law Firm, APLC is an estate planning and probate administration law firm in Los Angeles, California, serving families throughout the State. We help individuals and families establish living trusts, wills, powers of attorney, advance healthcare directives, and other essential estate planning documents designed to protect their loved ones and preserve their legacy. Schedule a quick and easy consultation with estate planning attorney Sedric E. Collins, Esq., or call 323-900-5450.
