Family Wealth Accumulation and Preservation Through Legacy Trust Planning

If you work hard and achieve financial success, there comes a time when you may wish to transfer, and further grow, the fruits of your labor to your grandchildren.

If your estate will be subject to an inheritance tax at death, there is great incentive to move as much wealth as far down the family tree as possible. Even if you are not currently subject to an inheritance tax, you still may desire to gift and grow cash to your grandchildren and for their children and grandchildren.

Transferring assets to grandkids needs some forethought and caution as such gifts can have unforeseen consequences. If you transfer too much in any year, the gift could be subject to a gift tax. Giving control of the gift to a grandchild upon receipt may not be desirable. A program for investing the gifted proceeds, and paying taxes that result from successful investing, has to be created and sustained.

Creating a Legacy Trust that purchases life insurance for the grandchildren can create gifts free of all taxes; flexible control over access to and distribution of funds; and tax-free investment growth that can be designed to last for generations to come.

Here is how to plan a Legacy Trust program. Create a family census from grandparents down through grandchildren to include gender, date of birth, and place of residence. With this information, design gifting scenarios: how much money per grandchild for how many years. In the U.S. today, one can gift (gift tax-free) up to $14,000 annually. So a plan designed with a census that included 4 grandparents and 2 parents could gift as much as $84,000 per gift recipient per year free of tax.

The next step is to begin the life insurance underwriting process. One of the reasons life insurance is so perfectly suited for the Legacy Trust concept is that all investment growth can be free of all taxes. Many times, the tax savings is offset to some degree by the internal cost of the death benefit. With young, healthy insureds, the cost of the death benefit is miniscule, greatly multiplying the tax advantages. Young, healthy insureds also have very simple medical underwriting. The challenge in issuing a relatively large amount of insurance on a very young person is financial underwriting. This is when it is important to work with an agent who has thorough knowledge and experience in this narrow area of expertise. Likewise, if the grandchildren live outside of the U.S., it is imperative that the agent knows how to successfully underwrite for foreign residency.

Once the underwriting course has been charted, the Trust itself must be designed and created. Since the Trust will probably be irrevocable, it is important to give forethought on the trust provisions such as who gets distribution and when. The types of life insurance that the Trust will buy with the money gifted to it must also be determined.

Below is a synopsis “How To” Guide For Legacy Trust Planning. Used effectively, the Legacy Trust concept can preserve and grow wealth in a family for generations to come.