The Dynasty Trust: A Smart Way to Preserve Your Estate for Future Generations OLA 1620 0906
Dec 18, 2015
The Dynasty Trust: A Smart Way to Preserve Your Estate for Future Generations
The Dynasty Trust: A Smart Way to Preserve Your Estate for Future Generations
OLA 1620 0906
This material was not intended or written to be used, and cannot be used, to avoid penalties imposed under the Internal Revenue Code. This material was written to support the promotion or marketing of the products, services, and/or concepts addressed in this material. Clients and other interested parties to whom this material is promoted, marketed, or recommended should be advised to consult with and rely solely on their own independent advisors regarding their particular situation and the concepts presented here.
How Is Wealth Lost from Generation to Generation?How Is Wealth Lost from Generation to Generation?
Transfer taxes Divorce Creditors Beneficiaries’ lack of asset management skills
Influencing the Behavior of BeneficiariesInfluencing the Behavior of Beneficiaries
Wealthy parents have two major concerns:– Future generations are not going to live as
well as parents do– Wealth left to children is going to spoil them
How do you bridge gap between these two conflicting worries?
– Answer: By establishing Dynasty Trust
What Is a Dynasty Trust?What Is a Dynasty Trust?
Used to: – Provide for future generations, and – Minimize taxes on wealth passed on to
those generations Gives ability to magnify wealth over
several generations Not just for the ultra-wealthy Form of Irrevocable Life Insurance Trust (ILIT) Leverage use of assets by purchasing life
insurance to fund Dynasty Trust
Benefits of a Dynasty TrustBenefits of a Dynasty Trust
Furnishes effective way to transfer significant assets to beneficiaries
Provides creditor protection by incorporating – Spendthrift provisions to guard against
irresponsible spending habits, or – Provision protecting from loss through
divorce settlement Assures continuity of asset management Can add incentive provisions for beneficiaries
Dynasty Trust Planning ConsiderationsDynasty Trust Planning Considerations
Generation-Skipping Transfer Tax (GSTT)– Dynasty Trust helps take advantage of
GSTT exemption– Proper use of GSTT exemption preserves assets
for future generations Some states have “rule against perpetuities”
– Dynasty Trust’s term may be limited by rule against perpetuities
– Term is 20 years plus lifespan of named individual
Dynasty Trust Considerations—Estate ExclusionDynasty Trust Considerations—Estate Exclusion
Policy proceeds not included in insured’s taxable estate if no incidents of ownership exist at any time within three years prior to death of insured
To keep policy out of grantor’s estate, policy applicant should be third party, such as Dynasty Trust
Grantor would then gift premiums to third-party owner
Dynasty Trust Considerations—Gifting to the TrustDynasty Trust Considerations—Gifting to the Trust
Grandparents are trust grantors
Annual gifts to trust, $12,000 per grandchild in 2006
$2 million split gift per grandparent to trust in 2006: full lifetime gift
and partial GSTT extension
Trust purchases survivorship
life insurance policy on lives of grandparents
Assets used to pay income and/or principal
to grandchildren during grandparents’ lifetime
The Dynasty Trust
Example: The Bucks FamilyExample: The Bucks Family
Bill and Barbara Bucks, both 65 years old Have substantial net worth Have one daughter, Susan, and three teenage
grandchildren: Tom, Eileen, and James
The Bucks Family: Goals and ObjectivesThe Bucks Family: Goals and Objectives
Would like to pass their wealth on to their grandchildren without paying federal transfer taxes
Want to use their wealth to encourage their grandchildren and future generations to achieve certain goals and maintain desired lifestyles
The Bucks Family: Action StepsThe Bucks Family: Action Steps
Bill and Barbara create Dynasty Trust Bucks transfer $2 million, each using $1 million
of their lifetime GSTT and all of their gift tax exemptions, to trust
– Trust structured to pay income to Susan’s children during grandchildren’s lives, and to successive generations thereafter
Bucks gift additional $72,000 to trust, using their annual exclusion, to purchase survivorship policy with death benefit of approximately $5.4 million
The Bucks Family: Trust IncentivesThe Bucks Family: Trust Incentives
Bucks include incentive provisions in trust toencourage grandchildren and their descendantsto meet certain goals and maintain desiredlifestyle standards: Trust will pay $50,000 to each grandchild or future
descendant who graduates from college Trust will match 50% of grandchildren’s or future
descendants’ earnings Trust will gift $50,000 to each grandchild or future
descendant who marries
SummarySummary
Dynasty Trust can help: Provide a legacy for future generations Minimize impact of transfer taxes such as gift
taxes and GSTT Encourage descendants to meet certain
educational, career, and/or lifestyle-related goals
Life insurance products issued by Transamerica Occidental Life Insurance Company, Cedar Rapids, IA 52499.
Transamerica Occidental Life Insurance Company (“Transamerica”) and its representatives do not give tax or legal advice. This material is provided for informational purposes only and should not be construed as tax or legal advice. Clients and other interested parties should rely solely upon their own independent advisors regarding their particular situation and the concepts presented here.
Discussions of the various planning strategies and issues are based on our understanding of the applicable federal laws in effect at the time of publication. However, these laws are subject to interpretation and change, and there is no guarantee that the relevant authorities will accept Transamerica’s interpretations. Additionally, this material does not consider the impact of applicable state laws upon clients and prospects.
Although care is taken in preparing this material and presenting it accurately, Transamerica disclaims any express or implied warranty as to the accuracy of any material contained herein and any liability with respect to it. This information is current as of September 2006.
The Dynasty Trust: A Smart Way to Preserve Your Estate for Future Generations
The Dynasty Trust: A Smart Way to Preserve Your Estate for Future Generations
OLA 1620 0906