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Three Reasons to Consider a Different Type of Trust in Your Estate Plan Thumbnail

Three Reasons to Consider a Different Type of Trust in Your Estate Plan

Trusts

KEY TAKEAWAYS

  • Generation-Skipping Trusts also sometimes referred to as Dynasty Trusts, provide more flexibility than a typical will or trust, including the ability to change beneficiaries at a later date. 
  • Instead of liquidating a trust during the initial beneficiaries’ lifetimes, a trust can be sustained for future generations.
  • Look for trust structures that protect beneficiaries from lawsuit or divorce claims, can skip generations when tax-advantageous to do so, and provide long-term security for heirs.

Generation-Skipping Trusts 

Age-based distributions are an ideal structure for an estate, but there are better alternatives for many families. Instead of liquidating the trust during the initial beneficiaries’ lifetimes, the trust could be sustained for future generations, such as the beneficiaries’ children or other directed beneficiaries. These trusts are generally called Generation-Skipping Trusts or sometimes referred to as Dynasty Trusts with the following benefits:

Assets in the trust are protected from creditor claims that may arise during the beneficiary’s lifetime such as claims from lawsuits or divorces.

Assets skip the estate of the initial beneficiary and therefore may avoid federal or state estate taxes at their level.

Generation-Skipping Trusts provide long-term security for your family and maximize the assets that your heirs receive.

So what exactly are Generation-Skipping Trusts?

A Generation-Skipping Trust is a long-term trust designed to pass wealth from generation to generation without incurring transfer taxes such as estate and gift taxes. In the state of Washington, these trusts can last 150 years.  

There is also a fair amount of flexibility within Generation-Skipping Trusts, including the option for the beneficiary to be the trustee and the ability to select or change a future beneficiary if allowed to do so within the trust document.

Although many wealthy individuals who have estates that are subject to federal estate tax use Generation-Skipping Trusts, you and your beneficiaries don’t need to have a federally taxable estate in order to consider such trusts for your estate plan. As discussed above, such trusts provide protection from creditor claims, which is a significant benefit. Also, keep in mind, the state of Washington has a much lower estate tax exemption ($2,193,000 per person in 2021) as compared to the federal exemption which is $11,700,000 per person. So if your beneficiaries are financially successful, they may have a future estate tax and at least a portion of that tax could be avoided by leaving assets to them in a trust. 

Inheritances

One other estate planning consideration pertains to any inheritances you will receive. Would you be better off receiving this inheritance in a long-term multi-generation trust? Although these discussions may be difficult to have with your parents, it might be prudent when you consider your estate valuation and financial situation.

Specific Planning For You

Generation-Skipping Trusts may or may not be right for your estate plan. If they are, there are a variety of issues to consider. We work closely with our clients and their estate attorneys to make sure the right provisions for each client’s specific situation is established under the trust and we can help with the future funding and administration of the trust. 

Please contact us if you have questions about how this type of advanced estate planning can help you and your family preserve your hard-earned wealth and provide peace of mind for your family and future generations. 


About the Author: 

Todd Flynn, CPA, CFP® is a Principal at Soundmark Wealth Management. Todd works closely with physicians, business owners, and other successful and accomplished individuals to help them define their financial goals and implement an ongoing financial planning process. 


This report is intended to be used for educational purposes only and does not constitute a solicitation to purchase any security or advisory services. Past performance is no guarantee of future results. An investment in any security involves significant risks and any investment may lose value. Refer to all risk disclosures related to each security product carefully before investing. Soundmark Wealth Management, LLC, its advisors and its affiliates do not provide tax or accounting services. This material has been prepared for informational purposes only and is not intended to provide, and should not be relied on for, tax or accounting advice. Please consult with your tax advisor prior to engaging in any transaction.



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