Trusts and Estates Blog

Move Quickly on Very Long Term Dynasty Trusts

file system - focus on the taxation sectionFor years now wealthy people have used dynasty trusts to shield their assets from estate taxes for tens and hundreds of years, or even forever. But the dynasty trust is under attack from a new piece of legislations in President Obama’s 2012 budget. The bill would limit tax-free dynasty trusts to a maximum of ninety years. While experts say the bill has little to no chance of passing this year, the fact that its shown up is reason enough for investors and those seeking to transfer wealth to act quickly on establishing dynasty trusts as the bill will not be retroactive.

Besides the short time span before a bill limiting the effectiveness of the dynasty trust is signed, several positive reasons exist for establishing such a fund. The dynasty trust contains a generous terms on the state and gift tax—a $5 million individual exemption and a top 35% rate (both of which will expire after 2012).

Since a tax overhaul in 1986, many people have begun using dynasty taxes to transfer funds without penalty. For example, a man who wishes to leave money to his children, grandchildren, and great grandchildren would leave the money in a Dynasty Trust to his children and the trust would be rolled on to the next generation without estate taxes until it reached its final recipient. Without using a Dynasty Trust, each generation would amass an estate tax to be paid. Rather than losing wealth on taxes, this man could place his entire estate into a Dynasty Trust and avoid the many layers of taxes. In essence, heirs don’t have to spend their inheritance on estate taxes.

The Obama administration proposal would remove the federal estate tax exemption after ninety years so the trust can go on indefinitely but the tax exemption cannot. Because allowing such a trust affects many current state tax laws, only the following states allow dynasty trusts: Alaska, Delaware, District of Columbia, Idaho, Illinois, Kentucky, Maine, Maryland, Michigan, Missouri, Nebraska, Nevada, New Hampshire, New Jersey, North Carolina, Ohio, Pennsylvania, Rhode Island, South Dakota, Tennessee, Utah, Virginia, Wisconsin, and Wyoming.

Again, while the bill should not be passed this go-around according to experts, the fact dynasty trusts are being targeted is a good reason for those wanting to roll inheritance monies on to many generations to establish a trust as soon as possible.

Antelope Valley estate planning law firm Thompson | Von Tungeln, A P.C. (TVT) offers sophisticated estate planning and administration for the affluent, discriminating client. As Board Certified Specialists in Estate Planning, Trusts and Probate as certified by the State Bar of California Board of Legal Specialization, partners Mark E. Thompson and Kevin L. Von Tungeln are expertly equipped to serve these clients with the creative, effective and custom solutions they demand. For more information, contact TVT at 661-945-5868 or visit their websites at www.EstatePlanningSpecialists.com and www.Medi-CalHelp.com.

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