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Take tax-saving estate planning advice from the wealthy

On Behalf of | Feb 21, 2020 | Wills And Trusts

The famed business investor Warren Buffet once remarked about the increasingly widening gap that has been emerging between American’s rich and poor during the past few years. He once argued that this gap is only getting bigger because wealthy families are finding new ways to pass on their assets to their heirs using increasingly tax-saving approaches. Trusts are a key aspect of this.

Trusts were created as an instrument that individuals could drop their assets into to preserve their value for future generations. There’s so much more to trusts though.

The wealthy have long set up trusts to allow them to more seamlessly transfer assets to their beneficiaries, to avoid probate and to reduce or delay their tax burden. They’ve also used them to protect themselves from ex-spouses and creditors or as part of a charitable giving strategy. This approach has also been regularly used as a way for these individuals to protect their special needs beneficiary’s right to government benefits.

Tax obligations are perhaps one of the more important reasons why wealthy individuals set up trusts. Generation-skipping transfer (GST), gift and estate taxes were all devised as a way to ensure that families weren’t able to accumulate wealth in their hands. Trusts help you legally overcome those issues.

One of the go-to trusts that wealthy individuals like to set up is a GST trust. This allows the grantor to pass down any of their assets valued at $11.4 million or less to the next generation tax-free. Many individuals take exemptions to avoid having to pay the 40% GST tax that’s imposed if the trust’s assets are more than this.

The grantor of this type of trust must be at least 37.5 years older than their beneficiary or “skip person”. This is why grandparents often list their grandchildren as the recipient of any trust proceeds.

A multigenerational dynasty trust is also quite popular among wealthy families. This irrevocable trust will also allow you to pass assets tax-free onto future generations. Distributions aren’t generally made to beneficiaries at regularly scheduled intervals though.

Planning your estate requires careful consideration and forward-thinking. This is why the wills and trusts attorney that you hire in Frederick to handle your Maryland estate should be someone who is quite experienced in handling the complexities that come with working with the assets of families of means.