With all the uncertainty surrounding the lead up to the "fiscal cliff" at the turn of the year followed by the welcome extension of gift tax portability, financial advisors and estate planning professionals have spent a lot of time reexamining existing trust arrangements and looking forward to new opportunities. West Palm Beach readers who have followed recent discussions about some of the concerns and potential benefits arising from the fiscal cliff package may also be wondering whether they should be considering new approaches toward managing wealth for future generations.
Previous discussions have explored the versatility of various types of trust when it comes to achieving a broad range of estate planning goals. However, a comprehensive estate plan may require thinking beyond trusts alone. For example, one method for affluent families to minimize estate taxes while maximizing asset transfers to beneficiaries combines the use of a trust with a family limited partnership or limited liability company to form an entity commonly known as a dynasty trust.
Sometimes alternatively referred to as a family trust or a family bank, the dynasty trust allows for structured gifts to maximize asset transfers by benefiting from discounts to valuation for tax purposes. The trust can be tailored to schedule distributions from principal, interest or both at times and under conditions established by the grantor. With all the flexibility that trusts allow, the dynasty trust can be crafted to address concerns specific to individual beneficiaries and to provide incentives for beneficiaries to achieve benchmarks as a condition of distribution.
Trusts can deliver estate planning and wealth management benefits to individuals and families of all income levels, but more affluent families stand to recognize the most significant rewards from thoughtful advance planning. Florida residents considering trusts as an estate planning vehicle should bear in mind that errors in technical details can frustrate the purpose of a trust and potentially lead to unintended consequences. Experts recommend consulting experienced legal professionals to ensure that trust documents are properly drafted and executed in accordance with frequently changing state and federal laws.
Source: Marcos Island Sun Times, "Careful planning can maximize assets, reduce estate taxes," Vince Magee, Feb. 7, 2013