Estate Planners Advise Dynasty Trust Transfers Post-Tax Reform

A will that establishes an estate or trust based on outdated federal or state income tax exemption guidelines can be tied up in probate for an extended period and divest heirs of millions of dollars. With President Trump’s 2017 tax reforms increased exemptions for the ultra-rich have estate and trust planners scrambling. Evidence that the “Tax Cuts and Jobs Act” of 2017 (“TCJA”) will be pivotal to maximizing the high net wealth of some estates in the next eight (8) years. The new tax law has quite literally doubled the total asset amount allowable for transfer to beneficiaries. For dynasty trusts, the enhanced estate and gift tax exemption rules are a major opportunity to transfer wealth to beneficiaries tax-free.


Federal v. State Tax Exemptions

While state tax exemptions will remain at lower levels than the $11 million per person federal rules now provide, the incentive to take advantage of federal Internal Revenue Service (“IRS”) exemptions on transfers right now is significant. New York law allows for exemption of $5.25 million from estate tax. This leaves $5.75 million left open to state taxation. Sheltering assets from taxation, then, will still be relevant for many New York estates and trusts. Spousal and generation-skipping estate and gift transfer exemptions continue, however.


Advantages to Establishing a Dynasty Trust

The main advantage of establishing a dynasty trust is cost-savings passed on to heirs. Without an estate or trust, monies left to beneficiaries are subject to estate tax. Once transferred to a trust or gifted to a beneficiary, assets are protected from further taxation in the future. A revocable AB trust is a common estate formation that allows the estate of a surviving spouse separation from a deceased spouse’s estate for the purposes of tax-exemption on a larger than average number of valuable assets.


Large estates worth more than several million dollars, can be subject to generation-skipping transfer tax. Still, a loophole within federal law allows eligible beneficiaries in a lower IRS tax-bracket tax exemption on estate assets by way of a disclaimer. For example, a surviving spouse of high net worth can disclaim entitlement to the estate of a deceased spouse, as a measure of tax-exemption; defaulting those assets to other heirs who are more likely to qualify for tax-free income.


Contact an Estate Law Attorney

Federal IRS tax rule changes to estate, gift, and generation-skipping transfers, offers dynasty trusts an incredible opportunity to benefit from exemption. An estate planning attorney can advise of the best tax-free strategy for a client’s trust. Ettinger Law Firm is a licensed attorney practice in New York specializing in estate planning law and probate litigation. Contact Ettinger Law Firm for consultation about a dynasty trust related estate planning matter.

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