Let?s talk today about ?trusts.? I know it might not sound terribly exciting, but if you want to preserve the wealth you?ve worked so hard to accumulate, and you want to pass some down to your children and grandchildren, and minimize estate tax, you need to read on.? Of course, it makes sense to take steps to preserve the wealth you?ve accumulated, so your children and grandchildren can enjoy some of the fruits of your labor. But not only that, you may also want to share and pass on some of your personal values which will be your legacy for generations to come. I will explain how you can do all of these things and more.
?All you need is a vehicle we call a ?Dynasty Trust.? First, let me say that most trusts are established with a finite duration. But the Dynasty Trust has a term that can span several generations or will last indefinitely.? This is a huge benefit. Let me tell you a little bit about the basic structure of this kind of trust. It?s actually very simple. Here is what you need to know:
- You transfer selected assets?it could be a combination of stocks, bonds, and real estate?into a trust managed by an independent trustee, usually a financial professional or an institution.
- The trust may be created as an ?inter vivos? transfer during your lifetime or as a testamentary transfer through your will.
- Once established, such a trust is irrevocable. You can?t control it directly or change beneficiaries.
?Your trustee (the financial professional or institution) is responsible for investing trust assets. The goal, of course, is for the trust to be managed so that it will preserve most of its assets for the benefit of future generations.? Depending on the trust?s rules, income may continue to accumulate inside the trust or it may be paid out to beneficiaries, usually your children and other heirs. The trustee may also have discretion to use trust principal for the health, education, support, or maintenance of the beneficiaries or in other specified circumstances.
?One of your chief objectives for using a dynasty trust may be to minimize any estate taxes. Transferring assets to the trust removes them from your taxable estate, and through 2012, you can contribute up to $5 million to the trust (indexed to $5.12 million for 2012) ?or $10 million as a couple (indexed to $10.24 million for 2012) ?without owing gift or estate taxes. That?s good news for this year. But unless the current law is extended, those limits will fall to $1 million and $2 million, respectively, in 2013. And whereas the current law has a ?portability? feature that lets a surviving spouse use a deceased spouse?s unused exemption, that won?t be the case if Congress allows the law to expire. [1]
?Let?s talk about something I mentioned earlier?leaving a legacy. A wonderful aspect of the Dynasty Trust is that it can also be set up to help perpetuate values you hold dear. If you want your heirs to adopt your strong work ethic or your charitable inclinations, your trust might impose requirements related to those values that beneficiaries must fulfill in order to receive funds. Specifically, there could be rules related to working at particular kinds of jobs, demonstrating a commitment to charity, or meeting other kinds of ethical or religious benchmarks. Your trust can be set up to help heirs avoid the ?trust baby? syndrome that has often plagued wealthy families and to prevent spending sprees by irresponsible children or grandchildren.
?Another important objective you may have in setting up a Dynasty Trust may be to provide protection from any creditors. Because the trust, rather than its beneficiaries, owns the assets, creditors of your heirs won?t have access to the assets. And a Dynasty Trust?s indefinite or perpetual term means that protection will also be long-lasting. This feature can also safeguard assets against claims by a divorcing spouse.
?Hire And Fire, But Most Importantly?Don?t Wait!
I mentioned above (in the third bullet point) that you can?t control a Dynasty Trust directly, but you can reserve the right to hire and fire trustees and to provide guidance about investment policy. But don?t wait if you think a Dynasty Trust might benefit your family, it could be important to act soon, while the current estate tax provisions are in effect. Also, I understand that federal officials would like future rules to limit the duration of Dynasty Trusts. Time is of the essence.
?My team and I can work with you and your attorney to see how a Dynasty Trust might be integrated into your overall financial and estate plan.? ?Call me at 732-974-3770, write me at tom@froehlichfinancial.com? or visit us at www.froehlichfinancial.com .
?See you next time!
Tom?
Securities offered through American Portfolios Financial Services, Inc. Member: FINRA, SIPC. Investment Advisory services are offered through American Portfolios Advisors, Inc., an SEC Registered Investment Advisor. Froehlich Financial Group, LTD is not an affiliate of APA or APFS.
?Disclosure: If legal, tax, or other expert assistance is required, the services of a competent professional should be sought. This article is for informational purposes only.
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