You want to make sure your posterity is well provided for by your estate, but often, estate, transfer, and gift taxes can take a heavy toll on the assets you would leave to them. Making sure you leave a legacy for your children and grandchildren is central to the structure of certain trusts, including generation skipping and dynasty trusts. These both allow for the transfer of assets from one generation to another without incurring certain tax liabilities.
Both these trusts are well worth your consideration when taking care of the tax planning aspects of your estate planning strategy. Given the regulations and tax laws in place on transferring assets in your estate, involving a lawyer in structuring them is well worth your while. This is where Hart & David comes in for private clients within Chicago and its surrounding suburbs.
Transferring your estate to your children results in estate taxes for both you and them. Generation skipping avoids these taxes by transferring assets to your grandchildren rather than your children. This doesn’t mean your children are completely cut out, however. They can still receive benefits from the trust if it is properly structured.
In order to prevent people from avoiding estate taxes through generation skipping, the federal government passed tax laws that exact an exorbitant tax from individuals at least 37.5 years younger than the transferor. However, most beneficiaries of a generation skipping trust won’t have to worry about paying the GST tax since the exemption levels are very high.
However, for those who exceed the tax exemption limit, the taxes take away a very large percentage, so knowing how to implement a generation skipping trust that works efficiently within tax considerations is very important. Hart & David can help you structure your generation skipping trusts to be maximally beneficial to your children and grandchildren while remaining tax efficient.
Estate taxes only apply once—when the capital is transferred. With dynasty trusts, however, the amount on which those apply is very high, so transferring an amount below that will not incur taxes. After that, the trust continues to produce revenue for generations, all without being subject to estate or gift taxes (normal income taxes will still apply, however).
Basically, a dynasty trust takes your assets and places them in a trust from which your children can receive income. After they all pass on, your grandchildren become the beneficiaries, and so on from generation to generation.
Implications on Tax Planning
The constant changes in tax code, regulations on estate and gift transfers, and overall management of assets mean you need a lawyer who is up to date on these matters. They can heavily impact generation skipping and dynasty trusts that are intended to avoid these taxes, so getting legal assistance is absolutely vital.
Hart & David can draft the documents and structure the trusts you need to provide for your children, grandchildren, great grandchildren, and so on without having to take heavy hits from the IRS. In addition, we advise you on making sure everything is compliant with federal and state regulations. For more information or to set up a free consultation, contact us today.