Dynasty Trust Case Study

Meet Ellen

  • Ellen is a 70-year-old widower with two children and four grandchildren. Her net worth is $35M.
  • Ellen would like her children and grandchildren to benefit from her assets while she is alive and not have to wait until she passes away.
  • Ellen has not made any gifts and has a substantial estate tax issue (40% above $11.7M at her death).

How can Ellen benefit her children and grandchildren while minimizing estate taxes?
  • Ellen’s attorney drafts an irrevocable dynasty trust for the benefit of her children and descendants.
  • Ellen gifts $11.7M in assets to the trust. Ellen’s CPA prepares and files a gift tax return reporting the gift.
  • When Ellen passes away, the value of the trust at that time is not included in Ellen’s estate and no estate tax would be due for the gifted assets.

Players in the Dynasty Trust strategy:
  • Ellen is the grantor. To ensure the assets remain outside of her estate, Ellen should not retain investment or distribution discretion.
  • The trust would typically be a grantor trust for income tax purposes. Ellen would be responsible for paying income taxes on behalf of the trust thereby reducing her estate even further.
  • IconTrust is typically the administrative and distribution trustee to handle the books and records and distributions from the trust.
  • A third party that Ellen chooses could be the investment trustee and determine the investments inside the trust.
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