It can make sense in many cases for New York residents to use trusts, rather than other methods, to transfer wealth to younger generations. Among the advantages trusts might offer are asset protection, maintaining family control and tax planning. Dynasty trusts may be one of the most useful estate planning instruments for individuals and families who want to preserve wealth for a long time.
Any trust that exists for more than one generation after the grantor falls into the category of dynasty trusts. The two major benefits that make dynasty trusts unique are the generation-skipping transfer tax exemption and the creation of a second layer of tax benefits. Generally speaking, the tax laws do not allow a person to avoid paying taxes by skipping a generation when distributing assets. If a person bequeaths assets to his or her grandchild in a will, for example, the GST tax will be applied. This may be avoided with a dynasty trust.
Additionally, the assets placed in trust may grow without the trust having to pay taxes on the growth. The person who creates the trust can pay income taxes on the growth, so the trust assets grow tax free. This structure has the further benefit of reducing the size of the grantor’s estate, reducing estate tax liability when the person dies.
People in New York who have questions about their estate plans or about transferring wealth to future generations might want to speak with a lawyer who has experience practicing estate planning law and who might be able to help by suggesting specifically designed trusts or other instruments to distribute assets according to the client’s needs and goals. A comprehensive estate plan can work to reduce the amount of taxes that must be paid and lower the stress placed on heirs.