Due to the new tax relief measure that was passed in mid-December we are working with an estate tax rate of 35% in 2011 and 2012.
Prior to the passage of the legislation the maximum rate was set to revert back to the 2001 level, which was 55%.
Before the one year repeal in 2010 the rate of the tax had been 45% for three consecutive years, from 2007 through 2009.
Many people were pleased to see the rate of the estate tax shaved down some, but the fact is that it is still extreme and capable of eroding your legacy profoundly in the blink of an eye.
To provide an example, let's say that your estate represents a five generation family legacy of $25 million.
Under the current laws your heirs would receive just $18 million of that and the government would take $7 million.
And when your children passed that remainder on to their children, the tax would strike again, reducing the $18 million to $13.
45 million.
So over two generations your $25 million legacy has been sliced nearly in half, and this can go on and on.
One solution to this incredibly aggressive asset erosion is the creation of a generation skipping trust.
What you do is fund the trust and appoint a trustee per usual, but what makes this vehicle so useful is that you name your grandchildren the beneficiaries.
Since your children are not the owners of the assets the contents of the trust cannot be pursued by claimants or former spouses.
However, your children can receive distributions from the trust and otherwise take advantage of trust resources.
For example, they could live in property that has been placed in the trust.
When your children die, the beneficiaries, who are your grandchildren, inherit the contents of the trust and the estate tax must be paid only once across the two generations.
Prior to the passage of the legislation the maximum rate was set to revert back to the 2001 level, which was 55%.
Before the one year repeal in 2010 the rate of the tax had been 45% for three consecutive years, from 2007 through 2009.
Many people were pleased to see the rate of the estate tax shaved down some, but the fact is that it is still extreme and capable of eroding your legacy profoundly in the blink of an eye.
To provide an example, let's say that your estate represents a five generation family legacy of $25 million.
Under the current laws your heirs would receive just $18 million of that and the government would take $7 million.
And when your children passed that remainder on to their children, the tax would strike again, reducing the $18 million to $13.
45 million.
So over two generations your $25 million legacy has been sliced nearly in half, and this can go on and on.
One solution to this incredibly aggressive asset erosion is the creation of a generation skipping trust.
What you do is fund the trust and appoint a trustee per usual, but what makes this vehicle so useful is that you name your grandchildren the beneficiaries.
Since your children are not the owners of the assets the contents of the trust cannot be pursued by claimants or former spouses.
However, your children can receive distributions from the trust and otherwise take advantage of trust resources.
For example, they could live in property that has been placed in the trust.
When your children die, the beneficiaries, who are your grandchildren, inherit the contents of the trust and the estate tax must be paid only once across the two generations.