Ryan is a widower who recently sold the business he’d spent 40 years building. His adult children are successful professionals and he has several grandchildren, with more expected. He’d like to leave a financial legacy for this third generation — and beyond.
Ryan hasn’t yet used any of his gift and estate tax exemption, so his tax advisor suggests he set up a dynasty trust. He decides to transfer $10 million to it, and there’s no gift tax on the transaction because it’s within his unused exemption amount. And the funds, together with all future appreciation, are removed from his taxable estate.
Most important, by allocating his GST tax exemption to his trust contributions, he ensures that any future distributions or other transfers of trust assets to his grandchildren or subsequent generations will avoid GST taxes. This is true even if the value of the assets grows well beyond the exemption amount or the exemption is reduced in the future.