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LIFE INSURANCE DYNASTY TRUSTS

Posted by admin On April - 28 - 2012

A dynasty trust, also known as a GST, legacy or perpetual trust, is a flexible vehicle that can provide asset protection, wealth management and wealth accumulation for many generations, or even perpetually.  In making contributions to a dynasty trust, an individual’s (or married couple’s) exemptions for gift taxes and generation-skipping taxes are utilized to insulate trust assets and distributions against gift and estate taxes forever — a good way to protect family businesses and hard-earned family wealth against punitive, profligate tax collectors.

When trust assets (e.g., cash, stocks, bonds, business entities) are invested in a private placement life insurance (PPLI) policy (min. premium commitment usu. $1 million), no income or capital gains taxes are paid on investment growth.  Accordingly, trust assets in the life insurance wrapper can grow and be distributed to beneficiaries completely free of taxes perpetually.  In contrast to foreign PPLI, domestic PPLI requires a minimum premium commitment of $5 million or more, only in cash, and is subject to state-imposed investment restrictions.

An alternative to PPLI is a foreign deferred variable annuity (DVA), which may be obtained for a minimum premium commitment of $250,000.

For the years 2011 and 2012, the individual lifetime gift and estate tax exemption is $5 million.  Unfortunately, if the craven politicians of both major U.S. political parties increase estate and gift taxes (cf. Obama’s “Buffett Rule”), future dynasty trusts could be eviscerated.  If a dynasty trust is already established, however, it will (presumably) be protected against prospective changes in the tax laws.

For more detailed info, please consult the articles listed on this website page, or contact this office for a free consultation.

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