|GENERATION SKIPPING TRUST|
Does the concept of passing along your fortune to the future generations of your family appeal to you? If so, then creating a generation skipping trust (often called a dynasty trust) may be what you need to do.
This type of trust allows the creator to pass assets on to grandchildren or their descendants, thus “skipping” a generation or more. Limits have been passed by Congress of $1 million per individual or $2.2 million when both spouses participate. Additional taxes are imposed on amounts exceeding those limits. Once the amount has been placed in trust, the entire amount will be shielded from estate taxes even if it has multiplied many times over by the time it is distributed generations later. Like most types of trusts, generation-skipping trusts are most effective when used in combination with other trust vehicles. These trusts tend to be quite complicated, and must be developed with extreme flexibility to accommodate changing tax laws and family situations that are certain to occur through the years.
A variation of the generation skipping trust is the dynasty trust. This type of trust can be created now or it can be incorporated into your Last Will and Testament. The trust might state that the trustee should give the beneficiary only the net income from the trust or the trust might direct the trustee to distribute a specified amount on a special occasion such as obtaining a college degree or getting married or becoming an architect. The trust can be quite flexible.
There are two areas of consideration when seeking whether you qualify for a dynasty trust. Estate and gift taxes are one area and the State law on long-term trusts is the other. By contributing no more than the exemption amount which is slightly over $1 million or $2.2 million if you are married and incur no tax liability.
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