Carroll D. Dortch
Guest Columnist, Okura & Associates
One of the best ways to protect the assets that you give to your children is by using a generation-skipping, transfer tax-exempt trust. These are often referred to as generation-skipping trusts, which typically creates confusion since the trust does not skip a generation unless you specifically intend for it to do so. The name, generation-skipping trust, is merely reflecting the type of taxes these trusts are exempt from: generation-skipping transfer taxes. To avoid unnecessary confusion, our law firm typically refers to these trusts as “legacy trusts.”
A legacy trust is one that does not end and distribute assets upon the death of the person who created it. The creator of the trust is generally referred to as the Settlor. A legacy trust continues to own the assets transferred to it by a Settlor long after the Settlor passes away. This means that the legacy trust, rather than your children (assuming your children are your named beneficiaries), maintains the legal ownership even after a Settlor dies. So, your children do not own what you have put into the legacy trust, even if they are benefiting from it. This can make a huge difference when the children die, or if they ever get divorced. It can even be set up to protect, from your children’s creditors, the assets you give to your children. Since the legacy trust offers some of the best legal ways to avoid the issues associated with death, divorce and creditors, they are often recommended during consultation meetings.
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