How about transferring an asset to a trust so it will be
removed from your estate and therefore not a taxable estate asset, but retaining
enough “strings” to the asset so
that any income taxation will be paid by yourself and this income tax payment
(accumulated over the years to become significant) also reduces your taxable
estate?? Sound interesting, then
you may be interested in the Intentionally Defective Grantor Trust often refered to as a Dynasty Trust.
Considering historically low interest rates and a
depressed stock market, the opportunity for Estate Planning in the Asset
Transfer Department is high to pass on dramatic amounts of wealth to our
children and grandchildren. If you are “bearish” and believe your assets will
continue to decrease, this article will be of little interest to you; in the
alternative, if you are “bullish” and believe your assets will increase in the
future (or at least sometime in your lifetime) this could be the perfect time to
investigate and activate some really great Estate
Planning.
Clients who are interested in transferring assets to
their children and or grandchildren would be wisely served to consider what is
referred to as a sale or transfer to an “intentionally defective irrevocable
trust” This is a tax efficient procedure to minimize estate taxation and
leverage gifts, also this procedure “locks-in” value for Estate and Gift Tax
consideration while passing all future appreciation to your children and or
grandchildren.
To fully appreciate this Estate Planning strategy, a
client must recognize that the rules for Estate and Gift Taxation are not the
same as the rules governing trusts for Income Taxation. This reality of two
distinctly different sets of rules result in the creation of an Irrevocable
Trust that is fully and effectively recognized as a separate entity for purposes
of removing assets from the estate for Estate and Gift Tax purposes, while at
the same time “defective” and therefore not recognized as removing assets by the
creation of a separate entity for Income Tax
purposes.
