Posted by: Woodfork Law | May 7, 2013

The Dynasty Trust

Many grandparents would like to leave a portion of their estate to their grandkids. Before doing so, at least two issues must be considered.  First, and the most known, is the extremely high tax consequence.  Second, the very real issues of asset protection from the grandkids’ creditors.  With respect to taxes, currently in 2013, there is a 40% estate tax on estates left to kids, and grandkids.  The tax on estates left to grandkids is known as the “Generation Skipping Tax.”  However, in reality, most estates are not effected by either 40% tax because currently the IRS provides a tax exemption up to $5,250,000.00.  Or put another way, unless you have over $5,250,000.00 in your estate, your grandkids will not pay 40% taxes.

However, even if you don’t have over $5.25 million to leave to your grandkids, you should also consider your grandkids’ creditors or their ex-spouses when leaving assets to them.  The way to solve creditor problems is with a “Dynasty Trust.”  At its most basic level, a Dynasty Trust is a trust set up for the benefit of your grandkids.  Asset protection is provided through use of “spendthrift provisions.”  Essentially, these provisions protect the assets from creditors, ex-spouses, or anyone else who attempts to attach the estate assets.  Thus, even though most will not have to worry about generation skipping taxes, a Dynasty Trust could benefit an estate.

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