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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.
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