When you consider that what you leave your children is even further diminished by estate taxes at their death, you will begin to understand why many descendants of yesterday's tycoons are now back in the common workforce. 

It doesn't have to be that way, however.   We have counseled many clients over the years and have helped save them (and their descendents) significant sums of money.  As a matter of fact, compared to tax planning, the money saved from estate planning for our clients and succeeding generations can be quite staggering!

Proper Planning

By planning ahead, you can avoid a lot of the family pain by implementing a generation skipping transfer (GST) trust.  GST trusts can be used to avoid estate taxes and provide income for life for your children, grandchildren, etc.  The trusts can also be used to fund educations for future generations, maintain family control of a business or provide for the lifetime care of an impaired child.

How does the trust avoid estate taxes?  Every individual is granted a $5.34 million (as of 2014) lifetime transfer exemption, either by gift or bequest to his or her grandchildren or future generations.  A married couple can thus transfer $10.68 million of assets to a GST trust for their grandchildren and avoid the generation skipping transfer tax.  

At the death of the couple's children, grandchildren, etc., the trust assets will not be subject to estate taxes since the descendents own only a life interest (income for life) in the property.  The couple can, of course contribute more than $10.68 million to a GST, but the excess will be taxed at the very high generation skipping transfer tax rate.

A GST can pay income to succeeding generations for as long as state law will allow the trust to be in existence.  While many of our wealthier clients may not consider a $5 or $10 million transfer a significant amount of their total net worth, the proceeds, when left to grow at a 7 or 8% rate or higher can accumulate to hundreds of millions of dollars by the third and fourth generations.  As they say in Washington, your great-great grandchildren may actually consider that real money some day!  

Please give us a call if you would like to discuss establishing a GST trust.  While none of us will live forever, this is one personal strategy that can give each of us the chance to have an eternal family legacy.