A Legacy Trust May Provide The Solution

The news about the changes to the estate tax parameters has been the talk of the estate planning community, and the fact is that the new legislation is an improvement. But it is important to keep the matter in perspective, because in the end we are still left with a 35% estate tax, and it is hard see how this federal levy is just.

To provide a basic example, suppose you decided to take your grandfather’s advice and save a little something out of each of your paychecks when you were a very young person. You watch your savings grow and continue the practice throughout your life, setting aside a percentage of each paycheck for all of your working years. At end of several decades your thrift pays off, and you find that you have accumulated quite a tidy sum.

Each of your paychecks over the years was taxed, and when you consider payroll tax as well as income tax you were left with perhaps 60% of what you actually earned. The money that you put into your savings account over all those years was part of this after-tax remainder. But when you pass away and leave your savings to your children, the transfer is subject to a 35% estate tax. And if they never touch that money and then leave it to their children, the estate tax will once again be imposed.

This is simply not acceptable to most people, and one solution is the creation of a legacy trust, which is also called a generation skipping trust or GST. With these trusts you make your grandchildren the beneficiaries rather than your children, but your children can benefit from the trust, receiving cash distributions and utilizing trust property. But since they don’t own the assets, these resources are protected from judgments against your children. When they die, your grandchildren inherit the assets in the trust, so the estate tax is only levied once but the assets pass through two generations.

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Anthony Moccia

Anthony Moccia is an attorney and partner at The Law Offices of Kobrick & Moccia.His practice focuses on estate planning and elder law.He is a member of the New York State and Nassau County Bar Associations.He frequently presents free seminars on wills & living trusts to area residents and his seminars are said to be “informative, entertaining & easy to understand.”

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