A great estate planning tool is a revocable living trust called a Dynasty Trust designed to last for multiple generations. The Dynasty Trust contains a special provision for the continuation of the trust after your death for the benefit of your children and beyond. At your death, the Dynasty Trust creates a separate “Legacy Trust” from the original trust for the benefit of each beneficiary you name. The Legacy Trust protects the assets in the Legacy Trust from the creditors of the beneficiary, from estate and death taxes at the death of the beneficiary, from claims of their spouses in the event of a divorce, and can insulate assets in the trust from being deemed “available resources” in the event the beneficiary seeks public assistance under Medicaid for nursing home care.
A child or other family member may serve as the trustee to manage their Legacy Trust, and as such, will have full discretion in the investment and use of the assets in the trust. The beneficiary is entitled to the income from the trust and has the right to withdraw principle for their health support, maintenance, and education of themselves and their descendants.
Finally, the beneficiary of a Legacy Trust can use their Will to direct how the Legacy Trust shall pass to their children at their death. They can “appoint” the trust outright or in further trust to their children or any descendant. In other words, they can leave the Legacy Trust to anyone in the family. They can even be given limited authority to leave the property in the trust for the benefit of their spouse. This additional power may be appropriate where the beneficiary has no children.
Legacy Trusts are designed to minimize the risk of federal and state estate taxes at your death up to the individual generation skipping tax exemption permitted by law. This exemption is presently $5.45 million, plus a factor for inflation. However, if your estate exceeds the exemption it is important that the beneficiary discuss this fact with their attorney, a tax advisor, or CPA at the time the Legacy Trust is to be created.
If you have additional questions regarding using a Legacy Trust for your children after your death, please feel free to contact me at my Urbanna office.
Joseph T. Buxton III is the founder of TrustBuilders Law Group, Buxton and Buxton, PC with offices in Virginia Beach, Yorktown, Williamsburg and Urbanna, VA.