If you have built and/or acquired substantial assets over your lifetime, chances are you want to enjoy their fruits before passing them on to loved ones. Gifts are one way to share the wealth. In addition, trusts that transfer wealth may reduce your taxable estate with some added benefits. Besides transferring wealth, you may be able to make charitable contributions and provide for future generations.
This type of trust allows you to donate to a charity while also helping yourself. In addition to supporting your philanthropic interests, you will also be reducing the size of your estate. This can lead to lower taxes. During the term of the charitable remainder trust, you (as grantor) receive an annuity that is usually based on the trust’s income. When the trust ends, any assets in the trust pass to the chosen charity.
This type of trust may be used to pass large financial gifts to your heirs. Often, a grantor may transfer assets that are likely to increase in value like stocks. Using this type of asset to fund the trust passes the future appreciation of those assets on to the next generation but with favorable tax treatment.
Assets moved to this type of trust are frozen for estate tax, but not for income tax. The grantor creates an intentionally defective trust, and continues to pay income tax on trust income. However, the grantor’s estate is reduced by the value of the assets used to fund the trust.
Beneficiaries of the trust typically are the children or grandchildren of the grantor. The grantor can transfer wealth to beneficiaries on which they will not pay income taxes, typically, during the life of the grantor.
To pass your wealth on to your children, grandchildren, and beyond, consider establishing a dynasty trust. This long-term trust is designed to transfer wealth from generation to generation while reducing or eliminating estate tax, generation-skipping transfer taxes, and gift taxes. In fact, according to Florida law, a dynasty trust may last for up to 360 years beyond its creation.
Trusts can be complicated. This article simply cannot cover all the intricacies of trust laws. However, an experienced estate planning attorney can help clients make informed decisions about trusts.
At the Law Offices of John Mangan, P.A., we help clients develop plans that achieve their estate planning goals. Please contact us at 772-324-9050 to schedule an appointment or fill out our Contact Form. From our office in Palm City, Florida, we also serve clients in surrounding communities like Stuart, Hobe Sound, Port St. Lucie, and Jupiter.