Keeping Assets In The Family

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OCEAN CITY – The tax fallout of any inheritance strategy is a major concern for those wishing to pass on their wealth to the next generation.

But by working with your attorney and financial advisor to create the right trust strategy and structure, you can transfer more to heirs, keeping the bulk of your assets in the family.

Dynasty trusts, also known as “generation-skipping trusts,” can be structured to pay income—plus principal, in cases of need — to your children for their lifetimes. After that, the trust benefits your grandchildren in the same form — and on and on.

Because your children and grandchildren do not own the assets outright, the funds in trust will not be included in their taxable estates, nor will they be vulnerable to creditors, divorce or other lawsuits, explains Chuck Banker, First Vice President of Investments at Merrill Lynch.

“So you really get the best of both worlds — you provide your children with control and enjoyment yet keep the assets protected,” Banker said.

A husband and wife can donate as much as $2 million to fund the trust, using their lifetime gift tax exclusion, plus an additional $24,000 for each child and grandchild in the same year.

And you don’t have to fund the trust with cash, says Peter Pangis, Merrill Lynch Trust Company’s Regional Trust Manager for the Eastern Region. By gifting assets you think will appreciate considerably, such as a block of stock, you can fund the trust, and the future appreciation will be removed from your taxable estate.

“It’s possible to leverage the $2 million gift tax exclusion by contributing assets that may appreciate,” says Pangis.

Another strategy is to take out a life insurance policy, using a one-time premium to fund the trust, and have a substantial future death benefit for your children, grandchildren and future heirs.

Talk to your financial advisor to find out how a dynasty trust can help you provide income and security for generations to come.

(A Merrill Lynch Senior Financial Advisor. She can be reached at 410-208-8520.)

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