Massachusetts Estate Planning & Asset Protection Blog

Dynasty Trusts Under Fire

Posted by Dennis Sullivan & Associates on Tue, Mar 15, 2011

As budget debates continue to escalate, yet another estate planning tool has come under fire, reports The Wall Street Journal. If you’re interested in a “Dynasty Trust” you may want to act sooner rather than later.

The main objective of a Dynasty Trust is to continue for as long as possible, benefiting several succeeding generations. Usually, beneficiaries are allowed access to income only, so the trust’s principal assets remain intact to provide an income stream for future generations. Dynasty trusts have become increasingly popular since the 1986 tax overhaul and the current version of the “generation-skipping tax.” (GST). The GST imposes a levy that on transfer that skip one generation – such as those from grandparent to grandchild while the grandchild’s parent is still alive. You can avoid the GST, however, if your transfer skips more than one generation.

The Journal uses an example to illustrate:

Robert, a widower, has a net worth of $15 million and his heirs include children, grandchildren and great-grandchildren. If he leaves everything to his children and they in turn leave everything to theirs and so on, there could be an estate tax toll with each generation.

Robert would like to put his entire estate into a trust and skip layers of tax. But if he does, the generation-skipping tax kicks in and replaces the lost taxes—except for an exempted amount, which is currently $5 million per individual or $10 million per married couple. That $5 million can be pumped up using discounts, life insurance and other leveraging techniques.

Dynasty trusts push that generation-skipping tax exemption to the max, putting the exempted amount beyond the reach of estate taxes for the life of the trust. That, in turn, means the heirs don't have to "spend" their own exemptions on those assets.

Dynasty trusts are now allowed in 23 states and the District of Columbia. (You don’t have to live in a state to establish a trust there.)

When the Journal reports that Dynasty Trusts are under attack, they mean that the President’s budget proposal would remove the federal tax exemption after 90 years. So the trust can continue indefinitely, but the tax exemption cannot.

The Journal also suggests that the measure is unlikely to pass this year, but taxpayers should know that the idea is in play. As proposed, the change would apply to new trusts or additions of money to existing ones, but not to those already funded.

Bottom line: if you are considering setting up a Dynasty Trust, now is the time. You can take advantage of the current generous terms of the estate and gift tax – a $5 million individual exemption and top 35% rate, and lock in family wealth that may continue in perpetuity for your heirs.

For more information, check out our Estate Planning Strategies page, or attend a free Trust, Estate and Asset Protection Workshop.

Tags: Estate Planning, GST tax, estate tax savings, massachusetts estate planning strategies, applicable exclusion, Metro West Estate Plan

Think you Don't Need to Worry About Estate Taxes? Think Again.

Posted by Dennis Sullivan & Associates on Wed, Mar 02, 2011

Think You’re Estate Tax Exempt? Maybe Not.

You might think that only the "rich" need to worry about the estate tax.  In fact, many unsuspecting middle-class people are exposed to the tax, which at the federal level is a painful 35% currently.

SmartMoney recently ran a reminder to all possible victims of the estate tax. The fact is that you could have a taxable estate, and not even realize it.

 Most people assume that since they don’t “feel” wealthy, they don’t have to worry about estate taxes -- but they don’t actually do the math. Your “taxable estate” includes (minus liabilities): proceeds from life insurance policies; your primary residence and any vacation and/or rental properties; retirement accounts, investment accounts; cars, furniture, collectibles, and the rest of your “stuff.” Plus any private business ownership interests (such as shares in a family business or partnership).

Smart Money offers a hypothetical example:

Stephanie is a divorced single parent. Since she earns a healthy salary, she has a $4 million term life policy to provide for her three teenagers. She also has $800,000 of equity in her home, $1 million in retirement plan accounts, and $500,000 worth of assorted personal assets (cars, clothes, furniture, jewelry, and so forth). Stephanie has no significant debts beyond her home mortgage. Since she has never considered herself to be anything close to “rich” she has never done any estate-tax-avoidance planning. However, if she died tomorrow, her estate would be worth a whopping $6.3 million for federal estate tax purposes ($4 million + $800,000 + $1 million + $500,000), and her estate would owe the Feds $455,000 ($6.3 million estate – $5 million exemption) x 35% tax rate). Yikes! There may be a state estate tax bill too.

The bottom line is that estate planning means planning for contingencies. Consulting an estate planning attorney will not only help you plan for a potential estate tax liability, but also deal with important non-tax issues like probate avoidance, distribution of your hard-earned assets, providing for your own care in the event of long-term illness or disability, and the naming of guardians for any minor children.

You can learn more about the estate tax, by visiting the Determining Your Estate Tax page or read some of our past blogs on the Massachusetts Estate Tax.  If you are interested in other Estate Planning Strategies, sign up for a free workshop on Trusts, Estates & Asset Protection.

Tags: estate tax, estate tax savings, massachusetts estate planning strategies, Massachusetts estate tax, applicable exclusion, New estate tax law

At Long Last: What to Expect from Estate Taxes in 2011 - Massachusetts Estate Taxes May Actually Increase!

Posted by Dennis Sullivan & Associates on Sun, Dec 26, 2010


It has been a long and uncertain year for anybody interested in the future of the estate tax, filled with a few ups, a few downs, and a lot of speculation.  But after the recent passage of the new bipartisan tax bill all of the confusion and speculation is finally at an end, and it’s very close to what we anticipated.  The bill is good news for most taxpayers; the Wall Street Journal says there are “many winners, a few losers,” and according to the New York Times “Almost no one will have to worry about paying the estate tax under the tax legislation just approved by Congress.” That is except for those subject to Massachusetts estate taxes who do not make adjustments. For what to do to review Massachusetts estate plans please read on.

Here is a brief overview of what you can expect in 2011:

New Estate Tax Exemptions and Rates: The new bill sets the estate tax exemption at $5 million per individual ($10 million per married couple), with amounts over the exemption taxed at a 35% rate.  This is opposed to the $3.5 million exemption and 45% rate some lawmakers were hoping for.

Tax Election Option for 2010 Estates: As mentioned in a previous post, this is one of the biggest parts of the new bill. There may have been no estate tax in 2010, but there was also no “step up in basis,” meaning that heirs selling inherited assets were taxed based on the original acquisition cost of the assets, not on their value as of the date of the taxpayer’s death, as is usually the case.  This led to a higher tax paid on the assets if and when they were sold, in spite of the lack of estate tax. Tax election gives 2010 estates the choice of whether to use 2010 or 2011 tax rules—a happy option for 2010 heirs.

Estate, Gift, and Generation-Skipping Taxes: In recent years these three levies have had varying exemption levels, making gift giving and succession planning and challenging exercise at best. The unification of all three makes tax planning and giving gifts to grandchildren much easier than it used to be.

Individual Income and Payroll Taxes: The new bill wasn’t just about estate taxes; it also extends the Bush-era income tax rates; this is good news as it prevents a rise for nearly all taxpayers.

How Long Will It Last? We’re all glad that the waiting is over and we finally know what to expect, but the new law is only effective through 2012, at which point the provisions will “sunset.” (That is  estates above $1 million will be taxed.) This new tax package sets our minds at ease now, but the estate tax issue is far from over.  It looks as if we may have to revisit the issue in 2012-2013.

With the threat of high estate taxes out of the way does any reason remain to create (or update) your estate plan? Absolutely!

Estate planning is about more than just planning for taxes, it’s about taking control of your assets and choosing how your estate will be distributed.  Divorce, second marriages, planning for college, charitable gifts—these are just a few of the reasons why estate planning is essential regardless of the state of the estate tax.

Massachusetts Residents however, remain subject to Massachusetts estate taxes on amounts above one million dollars. Regardless of the federal estate tax increased exemption for the next two years, Massachusetts will assess an estate tax on all estates above $1 million. However a married couple many times will only get one exempt amount to split, unless they take the necessary steps to ensure their estate plan is up to date and funded correctly so they will be eligible to receive the $2 million combined exemption, as there is NO PORTABILITY in Massachusetts.

Also, Massachusetts clients and taxpayers need to watch out for estate plans created based on maximum federal applicable exclusion planning, common for many estate plans prior to 2003. Now with the $5 million federal exempt amount, there could be a COMPLETELY AVOIDABLE Massachusetts estate tax triggered at the first death. The cost to your souse and family could be as much as $400,000 in unnecessary estate taxes.

WHAT TO DO…if you have an existing estate plan, have it reviewed by a qualified tax and estate planning attorney so you make sure you, your spouse and your family are protected from unnecessary taxes now and in the future. It may also be helpful for you to have an ongoing review process to make sure that future changes in the law, finances and family circumstances will be taken into consideration in your life and estate planning.

At the very least, the recent fluctuation of the law means that you’ll want to call our office and make an appointment to have your existing plan reviewed and updated to ensure you don’t have any outdated clauses that could negatively affect your heirs.

If you do not have an estate plan or its been a while since it was reviewed by an experiences tax and estate planning attorney, consider attending an upcoming estate plan and asset protection workshop. For upcoming dates and to register click here or call 800-964-4295(24 hours) to register.

Tags: 2011, estate tax, estate tax savings, Massacusetts Estate Tax, massachusetts estate planning strategies, Massachusetts estate tax, applicable exclusion, New estate tax law, Metro West Estate Plan

Your Family is Better Off Planning, Not Waiting

Posted by Dennis Sullivan & Associates on Tue, Aug 31, 2010

"We know the estate tax is coming back, so you want to move assets out," said Andrew Friedman, in a recent Reuter's acticle, the former senior tax partner at Washington law firm Covington & Burling.  "This is a good year to give away assets to children and grandchildren."

If you have been following our blog, you know that in 2010 the federal estate tax disappeared for the first time since Teddy Roosevelt was president.  But 2010 ends in five months and without some action from Congress before the end of the year, the federal estate tax is slated to return on January 1, 2011 at the rate of 55% on estates over $1 million.

2011 Estate Tax Laws

Practically, what does all that mean for you and your family?  It means that you have an opportunity right now to minimize taxes and protect your estate through a comprehensive strategy of tax-free gifts, intra-family loans and trusts.  With the estate tax coming back, and with a vengeance, as early as next year, planning is critical.  Now is the time to act, with interest rates and asset values at historic lows, making certain wealth transfer techniques (such as GRATs and charitable lead trusts) even more attractive.

You protect yourself from more than the estate tax by acting this year - gift taxes, currently set at 35%, are set to bounce back up to 55% next year and, capital gains taxes are expected to rise.

If you would like to explore options to protect your family and estate, it is critical to act now. We are now moving into fall, and unless Congress moves quickly and decisively, some of these windows of opportunity will close with the return of the federal estate tax on January 1, 2011.

To learn more about your advanced estate tax and retirement planning opportunities, view our advanced, estate, tax and retirement video page for information on how to reduce a 70% tax on your retirement accounts and leave more of a legacy for your children and grandchildren.

Tags: Estate Planning, Estate Planning, 2011, estate tax, Massachusetts estate tax, tax exemption, applicable exclusion

Do You Intend Your Estate Planning to Disinherit Your Spouse?

Posted by Dennis Sullivan & Associates on Tue, Jul 27, 2010

The federal estate tax has been repealed for just one year: this year.  Unless Congress intervenes, it comes back next year with a vengeance.  This bizarre case of the disappearing estate tax means that you - and your estate - may be at risk.  Couples who planned their estates responsibly for 2009, and even 2011, could virtually disinherit a surviving spouse should something happen to one of them.  A recent articles posted at explained how:

For estate tax planning purposes, married couples traditionally use a planning technique known as "A-B" trusts.  Upon the death of the first to die, the original single trust is split into two trusts, a "decedent's trust" or "tax credit trust" (A) and a "survivor's trust" (B).  The decedent's trust is funded with the greatest value of assets on which where will be no federal estate tax for the first to die.  The remainder of the couple's assets fund the survivor's trust.  Done properly, at the death of the second spouse, the assets in the decedent's trust go to the children, with no taxes due, since they technically passed to the next generation under the estate tax exemption of the first spouse who died.  In this way, the couple is still able to take advantage of the estate tax credit granted to each individual spouse...Since the estate tax has been eliminated for persons dying in 2010, a decedent's trust created by the traditional language--"the largest taxable estate on which no federal estate tax is payable"--will contain all of the couple's assets and the survivor's trust will have no assets!

Estate Tax 2010 Repeal

Our office holds regular Trust, Estate and Asset Protection workshops where we review the current estate tax laws and educate individuals and families on how their planning can be improved to provide the greatest legacy for your spouse and children. Our upcoming schedule is as follows:

  • Thursday, August 5th at 10:00 am and 2:00 pm;
  • Thursday, August 19th at 10:00 am and 2:00 pm;
  • Thursday, September 16th at 10:00 am and 2:00 pm.

Register for a complimentary workshop by calling (800) 964-4295 (24 hours) or through our website by following this link.  We also provide continuing education on this topic for financial professionals.  Contact our office for more information.

Tags: Estate Planning, 2011, estate tax, estate tax savings, massachusetts estate planning strategies, tax exemption, applicable exclusion

The Top 7 Mistakes in Estate Planning: #3 Not planning for the Massachusetts and Federal Estate Taxes

Posted by Dennis Sullivan & Associates on Fri, Aug 28, 2009

Mistake No. 3: Not planning for the Massachusetts and Federal Estate Taxes


A trust is an effective way of doubling the amounts that a married couple can pass tax free to their children and grandchildren. While the federal estate tax free amounts continue to change and may drop to $1 million per person in 2011, it is important to consider how the growth of your assets over time will effect your tax situation. The state of Massachusetts also imposes a separate estate tax on all estates over $1 million. Your planning should address both of these taxes, which can be substantial.

Tags: Estate Planning, 2011, estate tax, estate tax savings, Massachusetts estate tax, tax exemption, applicable exclusion

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