Your legacy is the influence that you will be leaving behind after you pass away. Clearly, you may have had an effect that is intangible, and this type of legacy is very important and meaningful. However, there is also such a thing as a financial legacy.
It is important to plan ahead for the well-being of your loved ones and perhaps generations that have yet to be born if you are in possession of a considerable amount of wealth. One of the primary reasons why you must think things through quite thoroughly is the fact that the federal estate tax can be a multi-generational source of asset erosion.
At the present time the maximum rate of the federal estate tax is 40%, and the amount of the estate tax exclusion is $5.25 million. If you are going to be passing along assets to your loved ones that exceed $5.25 million in value you should certainly take steps to gain estate tax efficiency.
The best way to go about this will vary on a case-by-case basis depending on the circumstances. If you consult with a licensed estate planning attorney you can find out all your options and make informed decisions.
There are various different estate planning tools that can be used to mitigate your estate tax exposure. One of these would be the generation-skipping trust.
Paying the estate tax once is certainly not a very pleasant experience considering its 40% top rate. However, it can be imposed again and again as the same wealth is transferred from generation to generation.
You can slow this down a bit through the creation of a generation-skipping trust. As the name implies, you skip a generation and name your grandchildren rather than your children as the beneficiaries.
However, you are not completely disinheriting your children. They can benefit from funds and property that have been conveyed into the trust. In most cases they simply can’t control the assets, but even this could be possible under some circumstances through the utilization of a special power of appointment.
When you utilize this strategy your children benefit from the assets that have been conveyed into the trust, but they never actually own them. Therefore, the estate tax is not levied when the children benefit from the trust’s assets. When the children die the grandchildren inherit the assets that have been conveyed into the trust.
Only one round of taxation takes place, but two generations were able to benefit from the trust.
Generation-skipping trusts are just one of the many different tax efficiency devices that are used in the field of estate planning. If you would like to devise a tax efficiency strategy we invite you to contact our firm to schedule a free wealth preservation consultation.
Mr. Horowitz was awarded his Juris Doctor degree with honors from the University of Connecticut School of Law. While attending law school, Mr. Horowitz received the American Jurisprudence Award in Legal Ethics and the Nathan Burkan Award.
After graduation from law school, Mr. Horowitz continued his legal education at New York University School of Law where he received a Post Doctorate Law Degree in Taxation. He has also recently received a national achievement award.
Mr. Horowitz is admitted to practice before all the state courts in the State of Connecticut and the United States District Court.
Mr. Horowitz was selected for Super Lawyers in 2021, 2022 and 2023.
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