ProspectMatch: Estate Planning Strategies

A New Type of Trust May be Able to Solve Many Estate Planning Problems

Many wealthy Americans today are worried about what will happen to their estates after they are gone. Although many different types of trusts have been designed to help alleviate this problem, a new type of trust, called the “inheritor’s trust” has a level of flexibility that is unmatched by other estate planning vehicles. This type of trust is a dynasty trust, similar to many other types of dynasty trusts, except that this trust is a “stand alone” trust that allows for changes in investment strategies, as long as the beneficiary is willing to discuss the situation with his or her grantors.

A dynasty trust is one tool of estate planning strategies for the well to do.  Dynasty trusts are multi-generational trusts created specifically for descendants of all generations. Dynasty trusts can survive 21 years beyond the death of the last beneficiary alive when the trust was written. Assume that wealthy Mr. Henderson uses this estate planning strategy at age 80.  He has a new born grandson.  Assuming the grandson lives to age 90, the trust would continue for 111 years.  This trust could provide retirement income for several generations.

This type of trust can potentially provide substantial benefits for those seeking long-term, multi-generational planning, such as the type designed to avoid the generation-skipping transfer tax. It can also protect against divorce, creditors and estate taxes as all assets in the trust are immune to liabilities of the trust beneficiaries (this is a basic estate planning strategy–place assets in trust for protection form creditors). Any parent that is currently gifting assets to their children on any kind of regular basis should seriously consider establishing one of these trusts. The key difference between this type of trust and other trusts is that the beneficiaries must be willing to talk openly with their grantors regarding how they want the money invested or handled.

In order to establish an inheritor’s trust, an irrevocable dynasty trust must be established first. The inheritor is more often than not the trustee, and must usually choose a close friend or confidant to be the distribution trustee so that the trustee willingly makes distributions for supplemental retirement income to the beneficiary. This trustee has absolute control over what kind of distributions are made from income and principal. However, this transference to a third-party trustee is exactly what makes the assets of the trust so secure from creditors. Beneficiaries have absolutely no legal right to force any kind of distribution from the trust, which renders creditors unable to force any type of distribution from the trust as well. It is important to select the correct state to create the trust in, as the validity of these trusts will vary according to state law.

If you are worried about your estate tax situation or whether your beneficiaries will be able to do what they want with your assets once you are gone, contact experience legal counsel for the right estate planning strategy. The legal system provides many tools for sophisticated estate planning strategies but do people use them?

Financial advisors who seek to help people with estate planning: ProspectMatch

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