Estate Planning is necessary for everyone regardless of economic status. If you have been fortunate enough to create a strong financial base for you and your family, it is even more important that you plan ahead for your family’s future. Family wealth planning allows you to determine ahead of time exactly how you want your legacy passed on. If you don’t, your family may not benefit from your hard work in the end. One way to accomplish this is through a family trust.
What is legacy planning in general?
The purpose of legacy planning is to give clients the ability to preserve their financial wealth using various estate planning tools such as family trusts, wills, powers of attorney, irrevocable trusts, charitable giving and others strategies. When these tools are used to create a comprehensive plan for the future, the benefit can be immeasurable. There are many ways to properly protect your wealth. A Family Wealth Trust is probably the most flexible and most effective tool available. Property owned by a well-drafted family trust can have amazing benefits.
A Family Trust is not just for the wealthy
A Family Trust can be useful to anyone who is seeking to protect his or her family from unnecessary probate fees, attorney’s fees, court costs and federal estate taxes. In fact, the Family Trust offers substantial protection for your family, regardless of the value of your estate. A Family Trust can also protect spouses in the event of remarriage after one spouse dies, and afford greater protection for children and grandchildren.
What Is a Trust?
A trust is simply another way to own your property. It is an agreement between three parties: the grantor, the trustee, and the beneficiary. The “grantor” is the owner of the assets or estate. The “trustee” is the person to whom the grantor transfers legal title of the assets. The “beneficiary” is the person who will ultimately receive the assets once certain conditions have been satisfied. In a typical trust, you will occupy all three positions, and thereby have total control. A trustee can also be a relative, friend, attorney or accountant. Some organizations also offer trust services and provide trustees to manage the trust.
How Family Trusts provide asset protect
If the Family Trust is irrevocable, it cannot be modified once it has been created. Any assets placed in an irrevocable trust are permanently removed from your estate. Therefore, when you die those assets are not considered part of your estate and are not subject to estate taxes.
Qualified Personal Residence Trust
In addition to a simple Family Trust, you can take another step by removing your home from your estate using a Qualified Personal Residence Trust (QPRT), under certain situations. This tool has both advantages and disadvantages, however. One possible benefit is that any gift tax you may have incurred from giving the property away is reduced because you still retain rights to the house.
A disadvantage would be that, if you die before the trust ends, your home will still be considered part of your estate. If you live beyond the term of the trust, you would then be required to pay rent to continue to use the home. Before deciding whether Qualified Personal Residence Trust is right for you, discuss your situation and all of your options with an estate planning attorney.
What about a Generation-Skipping Trust?
Another option that may be available to you as part of your family wealth planning is a Generation-Skipping Trust. If you are looking to transfer your property to a grandchild, instead of your son or daughter, that property transfer might be subject to the “generation skipping tax.” The generation skipping tax, subject to an exemption, is assessed on property as it is passed on to a generation that is two or more levels below the generation actually transferring the property, in other words, your grandchildren or great-grandchildren.
A Generation-Skipping Trust is also known as a “dynasty trust”
Generation-Skipping Trust, also known as a “dynasty trust,” is designed for the purpose of avoiding, or at the very least reducing, estate taxes on transfers to subsequent generations. You can easily accomplish this by holding the assets in the trust and distributing the funds in a pre-defined way to each passing generation. Consequently, the entire amount of the trust can effectively be protected from estate taxes with each subsequent generation, as long as the trust is properly created and managed.
If you have questions regarding family trusts, or any other legacy planning matters, contact Gersh Law Offices, P.S.C. for a consultation either online or by calling us at (502) 423-7023.