A revocable trust is just one of the estate planning tools available to take advantage of Dynasty Trust planning. Irrevocable Life Insurance Trusts provide another vehicle by which parents can use Dynasty Trust planning to benefit their children, grandchildren, or both. If done correctly, the generation skipping tax exemption can be applied to the money gifted to the ILIT and used to pay the insurance premiums. In this scenario, the amount of the GST exemption used up is the amount of the gifts used to pay the life insurance premium and not the insurances death benefit. For example, if a grandparent gifted one hundred thousand dollars to an Irrevocable Life Insurance Trust established to benefit the grandchildren, ILIT Trustee could use it to purchase a life insurance policy worth several times the gift. The GST exemption would then be used to offset the GST taxes due, but the amount of the GST taxes is based only on the gifted amount of the premiums rather than the higher death benefit! This enables a large amount of life insurance to be purchased tax-free and used tax-free by mulitple generations. This is just one example among a number of other opportunities that are available for you to take advantage of with Dynasty Trust planning.
Whether your estate is large or small, a Dynasty Trust can provide significant estate planning benefits. Do you want your grandchildren’s inheritance, however modest or great, to be protected from abusive creditors, lawsuits, or future divorces? Do you want mulitple generations of your descendants to receive their inheritance federal estate tax-free? If you answer, “yes” to either of these questions, then you should seriously consider implementing a Dynasty Trust to protect your family.