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Estate Planning Like a Vanderbilt Requires Life Insurance Jan. 24, 2001 (Principal Financial Group) A dynasty trust can provide for subsequent generations and reduce transfer taxes. For example: William Randolph Hearst created a trust to own one-third of the stock of Hearst Corporation. That trust expires with the death of the last of Hearst's eight grandchildren (estimated at 2035), who were alive when Hearst died in 1951. Without this type of trust, property is normally taxed twice by the time it reaches the grandchildren. But Generation-skipping transfer (GST) -- currently at 55% -- may apply if a life insurance trust has grandchildren as beneficiaries. The exemption of $1,030,000 per individual helps clients create a "dynasty trust."
A dynasty trust is funded with property to which the grantor allocates all or part of his or her GST exemption. If the spouse participates, $2,060,000 may be allocated to the trust. Property can generally remain in the trust during the trust beneficiaries' lives plus 21 years. Some states -- Alaska, Delaware, Idaho, Illinois, Ohio, Rhode Island, South Dakota and Wisconsin - have no rule against perpetuities so a dynasty trust in these states, the trust can, in theory, last forever.
Life insurance can be an excellent way to leverage because the GST exemption can be allocated to the premium, not the death proceeds, if handled properly. Using the GST exemption allows clients to use virtually the same strategy used by the Vanderbilts and Rockefellers for generations to avoid estate tax.
2001, Principal Financial Group. All Rights Reserved.
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