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You’ve worked hard to accumulate assets throughout your life, so why not work just as hard to protect them while going through the estate planning process? With help from a trusts lawyer in Cape Cod, you can secure the protection you need to keep your assets safe for years to come.

So, what exactly is a trust, and how might one benefit you as you take part in estate planning? Continue reading to discover more about trusts and to gain a better understanding of why they’re such powerful estate planning tools.

What Are Trusts?

Surveys have shown that about three-fourths of Americans who go through estate planning create wills rather than trusts. Under 20% of people put together trusts during estate planning. Yet for most families, revocable trusts are the better estate planning choice, especially when their net worth exceeds only $140,000. Because not everyone knows what trusts are, let’s begin by breaking them down.

Trusts are financial tools designed to help people transfer wealth, avoid probate, reduce taxes and protect the assets they’ve accumulated throughout their lives. With assistance from a trusts lawyer in Cape Cod, you can put everything from bank accounts to real estate and even cryptocurrency into trusts for safekeeping. Doing so provides a unique level of protection that may not otherwise be available to you.

When you create a trust, you’ll appoint a trustee to manage the assets owned by the trust. But with many trusts you may continue to be the trustee – keeping control and access to the assets you place into the trust. With other types of trusts, you appoint someone else to be the trustee.  Depending on how the trust is written, it may be possible to protect these assets so creditors and others who might seek to file legal claims against you will be unable to access them easily.

Which Types of Trusts Are Right for Estate Planning?

While trusts can serve as invaluable estate planning tools, it’s worth noting that not all trusts are created equal. For example, a revocable trust is a type of trust that you can make changes to over time, while an irrevocable trust can not be amended by the person who creates the trust (although under modern trust law, it is possible for someone else to amend the trust).

The following are other types of revocable trusts or trust provisions you might want to think about using during estate planning with help from a trusts lawyer in Cape Cod:

• Personal Asset TrustTM
• Optimal Basis Increase TrustTM
• IRA Inheritance TrustTM

These are special types of Irrevocable Trusts that are used for specific goals or purposes:

• Capital Gains Avoidance Trust
• Charitable Remainder Trust
• Domestic Asset Protection Trust
• Spousal Limited Access Trust
• Irrevocable Life Insurance Trust
• Qualified Personal Residence Trust
• Grantor Retained Annuity Trust
• Grantor Retained Income Trust
• Health Education Exemption Trust
• Family Bank Trust

Not all of these trusts are ideal for every estate plan, but at least a few can deliver the protection you & your family may want. Using trusts for estate planning can also eliminate the need for the probate process in the aftermath of your death and ensure your beneficiaries can access your assets more quickly than they could otherwise.

How Can You Set Up a Trust During Estate Planning?

Trusts are hugely beneficial to most families. But there are specific requirements on how they must be created. And the rules for what should go into a trust can be tricky. For this reason, it’s smart to hire a reputable trusts lawyer in Cape Cod to help you set one up.

An experienced lawyer can determine which types of trusts would work well for you based on your current financial situation. They can also work through the process of establishing a revocable or irrevocable trust and show you how to take full advantage of it once it’s in place.

Contact Us To Speak With a Trusts Lawyer in Cape Cod Today

More people should consider using trusts for estate planning. If you are one of them, a trusts lawyer in Cape Cod from the Law Offices of Boyd & Boyd, P.C., can help you every step of the way. Give us a call at (508) 444-9688 to schedule an informative estate planning consultation.

Is It Possible to Preserve Generational Wealth in Trusts Forever?

In most cases, trusts must have some sort of expiration date. Only a few states allow trusts to go on in perpetuity, and in most cases, that only works in very specific cases even in those jurisdictions. However, you can still use dynasty trusts for benefits such as avoiding estate taxes and protecting wealth across multiple generations.

What Is a Dynasty Trust?

A dynasty trust is a trust designed to hold assets across multiple generations. Because the assets remain the property of the trust—and are not transferred into the ownership of heirs and beneficiaries—they remain protected against estate tax burdens, creditors, divorces and financial mismanagement by certain heirs

For example, imagine a situation where the grandfather in a family has plenty of wealth to pass on. However, he is concerned that future events might impact the wealth he will leave his adult child – events like a divorce, lawsuits resulting from accidents, etc. His worry is that there may be nothing left to pass on to grandchildren or great-grandchildren if he leaves assets directly to his child. That causes him to create a dynasty trust.

Historically, a Dynasty Trust is set up where there is a professional trustee, like a bank or a trust company. The trustee manages the assets in the dynasty trust according to the trust’s provisions. The Trustee will decide how much income and/or principal will be disbursed to the adult child and, later, the grandchildren and great-grandchildren. However, none of those people own the assets (because the trust owns the assets). They also do not have access to the trust assets outside of allowed distributions, so the adult child who may not be good with money cannot put all the assets at risk in the future.

Today, however, Dynasty Trusts are far more flexible. They can be set up in ways that offer the children, grandchildren and great-grandchildren far more control over the inheritance, without the requirement of a professional trustee. The Personal Asset TrustTM and the IRA Inheritance TrustTM are both a type of Dynasty Trust.

How Long Can a Trust Last in Massachusetts

Massachusetts has a common law and a statutory rule against perpetuities – both rules follow centuries old law that requires a trust to have an ending date. Consequently, trusts in most states cannot protect assets forever. Otherwise, individuals could use these trusts to protect wealth from certain taxes forever.

The rule in Massachusetts is that the trust must end 21 years after the death of the last beneficiary who was alive at the time the trust was created. Consider a hypothetical example to understand how long a dynasty trust might protect generational wealth for an affluent family:

• Edward wants to set up a dynasty trust to protect wealth for his children and other descendants.
• Edward is 67 years old and has two adult children: Robert is 42, and Tracy is 35.
• Robert has three children aged 22, 19, and 17.
• Tracy has two children aged 12 and 10.
• Robert’s 22-year-old also has a child, age 1.

Edward names all of these people as beneficiaries in the trust he creates. He might also create provisions that add other grandchildren or great-grandchildren as they are born, but the age of the trust depends on when the above people pass away.

Imagine that the 1-year-old listed above is the last person alive of those who were alive at the time the trust was created. If this person lives to age 95, the trust would last 21 additional years. All in all, the trust would protect the family’s wealth for 115 years.

What Are Some Benefits of a Dynasty Trust?

One of the biggest benefits of a dynasty trust is that it can help you protect assets against your heirs’ creditors, bankruptcies, divorcing spouses or other claims. Some trusts also allow you to have a say in how wealth is used or managed in the future, even when you are no longer able or present to give such direction yourself.

Another benefit of a dynasty trust is that it allows affluent families to avoid being hit with sizable estate taxes when transferring assets between generations. You do need to consider the implications of taxes and other financial matters when you first fund the trust. You may also need to consider income tax and other implications related to disbursements, and an experienced trust attorney can help you think long-term to maximize protections and savings.

Are There Any Downsides to a Dynasty Trust?

To provide the type of immediate and ongoing protection described above, dynasty trusts must be irrevocable. For this reason many families use revocable trusts while they are alive. After the person who created the trust dies, the trust becomes irrevocable – and it is at this point families have the trust act as a dynasty trust. It used to be very difficult to make changes to this type of trust, but that is not the case anymore. Dynasty trusts can be written so that they can be amended after they become irrevocable. But it is still important to consider your goals and the implications of the trust on future generations.

Those considerations necessarily require you to make educated guesses about future family finances and needs. An estate law team can help you approach this task by looking at the big picture and then considering how every detail might be relevant within that comprehensive outlook.

What Other Types of Trusts Might Help Safeguard Generational Wealth?

Other types of trusts might also help you safeguard wealth for future generations. Options can include Capital Gains Avoidance Trusts, Irrevocable Life Insurance Trusts, and Spousal Lifetime Access Trusts.

Each type of trust supports different financial goals and has different mechanisms to protect your assets. Understanding which trusts are right for you and your family is critical to being able to plan ahead appropriately and protect generational wealth. You may find that you need more than one type of trust to protect your assets.

Work With the Team at Boyd & Boyd to Protect Your Wealth

The experienced estate law team at the Law Offices of Boyd & Boyd, P.C., can provide the insight you need to understand trust options and what might work best for your family. To find out more about our services and schedule an appointment to get started with trust creation, give us a call at 508-444-9688.

Introduction

In the realm of estate planning, the only constant is change. Massachusetts, known for its rich history and vibrant cultural landscape, has recently witnessed significant shifts in its estate tax laws.

These changes, effective from October 4, 2023, have profound implications for residents and non-residents with property interests in the state. This blog post delves into the nuances of the Massachusetts Estate Tax Reform and underscores the critical need for revising estate plans in light of these developments.

Understanding the New Massachusetts Estate Tax Law

The Massachusetts Estate Tax Reform has introduced pivotal changes that impact estate planning strategies. The primary change is the exemption threshold, which now stands at $2 million. This means estates valued under this amount are exempt from the state estate tax, a substantial increase from the previous threshold.

The implications of this change are twofold. First, it potentially reduces the estate tax burden for many Massachusetts residents and non-residents owning property in the state. Second, and more importantly, it signals a shift in estate planning focus from avoiding estate tax to income tax planning.

Why Revise Your Estate Plan Now?

Estate plans crafted under the old tax regime may no longer be optimal. Here are key reasons why revising your estate plan is imperative:

1.  Shift from Estate Tax to Income Tax Planning: With the increased exemption limit, many estate plans need to pivot from primarily addressing estate taxes to optimizing for income taxes. This shift is crucial since income taxes, including capital gains taxes, can significantly impact the net value of the estate passed on to beneficiaries.
2.  Capital Gains Tax Considerations: The new law underscores the importance of capital gains tax planning. Most estates face a 20% capital gains tax rate, and this can be compounded by the 3.8% surtax on net investment income. Effective estate planning should now include strategies to minimize these taxes. Married couples have the unique opportunity to obtain a 100% step-up in cost basis, not just once but twice. A step-up in cost basis occurs when the owner of an asset dies. Currently, the law allows the basis of an investment assets (like stocks or real estate) to be changed from the amount that was paid for the asset to the value of the decedent’s interest on the date of death. The step-up gives a way to reduce or eliminate capital gains taxes. Since most married couples own assets jointly, there is usually only a 50% step-up. That means that should the surviving spouse want to sell an asset, there may still be a capital gains tax. But some trusts are specially designed so that when one spouse dies all of the assets of the trust are eligible for a 100% step-up in cost basis when the first spouse dies, and it is possible to get a second 100% step-up when the surviving spouse dies. By revising your estate plan, you may be able to take advantage of a 100% step-up so that your spouse of heirs will pay little or no capital gains taxes on the inherited assets.
3. Trust Structures and Income Taxes: Many people use trusts as part of their estate plan. However, under the new law, wills and most trusts may lead to significantly higher income taxes. In Massachusetts, there is an additional 5% state income tax on wills and most trusts, leading to combined income tax rates of almost 46% in 2024, potentially nearing 50% by 2026. It’s essential to review and possibly restructure these trusts to avoid unintended tax consequences. Many trusts can be re-written to take advantage of provisions in the tax code so that the income is not taxed at the higher estate and trust rates. Instead, it is possible to have the trust’s income subject to tax at the beneficiary’s lower tax rate.
4.  State vs. Federal Tax Disparities: The divergence between state and federal estate tax laws can create complexities. For instance, while the federal estate tax exemption is significantly higher, the state’s lower threshold requires careful planning to avoid state-level taxation. If the estate value exceeds the filing threshold, an estate tax return may be required at the state level. Even if the estate is below the federal threshold, filing a US estate tax return is often the best practice – it can start a Statute of Limitations and may allow for “portability” of the unused federal exemption. Many strategies to avoid estate taxation involve gifting. Gifts that exceed the annual exclusion ($17,000 in 2023 and 2024), require the filing of a gift tax return. Working with an attorney experienced in preparing and filing estate and gift tax returns can provide your family with the opportunity to take advantage of the differences and the loopholes that are in the state and federal laws.

Strategies for Estate Plan Revision

Given these changes, here are some strategies you might consider:

1.  Revise Wills and Trusts: Review and update your wills and trusts to align with the new tax landscape. This might involve changing how assets are distributed to minimize the overall tax burden.
2.  Incorporate Lifetime Gifting Strategies: With the high federal exemption, consider lifetime gifting to reduce the state estate tax liability. This strategy can be particularly effective in transferring wealth and minimizing future tax burdens.
3.  Reevaluate Ownership Structures: For non-residents owning property in Massachusetts, it’s crucial to reassess how their real estate is held. Different ownership structures can have varying tax implications under the new law.
4.  Explore Trust Decanting: If you have existing irrevocable trusts, trust decanting can be a valuable tool. It allows for the modification of trust terms to better align with current tax laws and personal circumstances. Not all trusts qualify for decanting.
5.  Utilize Trusts for Asset Protection: Despite the focus shift to income tax planning, trusts remain vital for asset protection. Most trusts act like wills and make outright distribution (ie. “After the death of the survivor of the Donor and the Donor’s spouse the Trustee shall distribute to …”). But they can be set up to safeguard assets from creditors, divorces, and lawsuits, while providing structured wealth transfer.

Conclusion

The Massachusetts Estate Tax Reform has set in motion a need for comprehensive estate plan revisions. Given the increased focus on income tax planning, residents and property owners in Massachusetts must proactively adapt their estate plans to navigate the new tax landscape effectively. Consulting with an experienced estate planning attorney is advisable to ensure that your estate plan is not only compliant but also optimized for your goals and the current legal environment.

Remember, estate planning is not a one-time event but a dynamic process that evolves with changing laws and personal circumstances. Embracing this change and taking timely action can significantly enhance the effectiveness of your estate planning efforts, ensuring that your legacy is preserved and passed on according to your wishes, with minimal tax implications. Stay informed, stay prepared, and let your estate plan be a reflection of both your financial acumen and your foresight.

Practical Tips for Navigating the New Estate Tax Landscape

In navigating these changes, here are some practical tips:

1.  Regular Reviews and Updates: Estate plans should not be static. Regularly review and update your plans in light of legal changes and personal life developments, such as marriages, births, and asset fluctuations. Many estate planning attorneys offer an Estate Planning Maintenance Program. Be sure to take part in such a program.
2.  Collaborate with Professionals: Estate planning is a complex field that intersects with tax laws, financial planning, and legal regulations. Collaborate with a team of professionals, including estate planning attorneys, tax advisors, and financial planners, to ensure a holistic approach.
3.  Maximize Charitable Contributions: Consider incorporating charitable giving into your estate plan. Not only does this facilitate philanthropic goals, but it can also provide tax benefits, especially in terms of reducing the taxable estate.
4.  Consider Life Insurance Strategies: Life insurance can play a strategic role in estate planning. It provides liquidity to pay estate taxes and other expenses, ensuring that assets do not need to be liquidated under unfavorable conditions.
5.  Explore Advanced Trust Options: Advanced trust structures, such as Domestic Asset Protection Trusts (DAPTs), Spousal Access Trusts (SLATs), Irrevocable Life Insurance Trusts (ILITs), and other planning techniques, can offer additional avenues for estate & income tax savings and asset protection.

Impact on Real Estate Ownership

The changes have particular significance for real estate owners. For those owning multiple properties or properties in different states, consider the implications of domicile and residency on your estate plan. Establishing trusts can be a strategic move to consolidate ownership and manage real estate assets efficiently, especially to avoid probate in multiple states.

Educating and Involving Beneficiaries

An often-overlooked aspect of estate planning is beneficiary involvement and education. It’s essential to discuss your estate plan with your beneficiaries to ensure they understand their roles, the plan’s rationale, and how to manage their inheritance effectively. This approach fosters transparency and helps prevent conflicts and misunderstandings.

Leveraging Technology for Estate Planning

In today’s digital age, leveraging technology in estate planning is becoming increasingly important. Digital asset management and online trust administration are emerging trends that offer convenience and efficiency. Ensure that your digital assets and online accounts are accounted for in your estate plan.

Staying Informed

Lastly, staying informed about legislative changes and emerging trends in estate planning is crucial. Subscribe to legal updates, attend seminars, and engage with professional communities to stay ahead in your estate planning journey.

Consider joining our mailing list to get notices about changes in the law or seminars that we offer.

Conclusion

The recent Massachusetts Estate Tax Reform is a call to action for individuals to revisit and potentially overhaul their estate plans. In an ever-evolving legal landscape, staying proactive, informed, and engaged with professional advice is the key to ensuring that your estate plan remains robust, effective, and aligned with your goals.

As we navigate these changes together, remember that estate planning is more than just tax savings; it’s about securing your legacy, protecting your loved ones, and ensuring that your final wishes are honored. Let’s embrace this opportunity to refine our strategies and fortify our plans for the future.

For more information about how recent changes to the law might impact your estate plans or how you can save on estate taxes of all types, reach out to the Law Offices of Boyd & Boyd, P.C.
by calling 508-444-9688.

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What Is a UHNWI and How Should You Estate Plan if You’re One?

Technically, ultra-high-net-worth individuals (UHNWIs) are considered to be those with a net worth of $30 million or more. It’s a fairly exclusive category—only around 580,000 people globally cross this threshold.

With high net worths to protect, many UHNWIs use tools such as trusts and gift tax loopholes to help manage their assets. Careful estate planning is required to ensure assets are passed on to heirs to contribute to generational wealth. While all estate planning tips that are applicable to UHNWIs might not be appropriate for others, anyone with substantial assets can likely benefit from them.

Estate Planning Concerns Related to Ultra High Net Worth

UHNWIs—as well as individuals that have very high net worths—often have unique estate planning concerns. They can include, but aren’t limited to:

• Preserving wealth. Many individuals with ultra-high-net worths desire to preserve that wealth for future generations. They want estate planning options that protect assets now but also support the continual growth and responsible management of assets over multiple generations.
• Minimizing tax liability. On average, only about 0.1% of estates meet the threshold for federal estate taxes. However, ultra-high-net-worth estates more than meet the threshold for these taxes, and other tax liabilities may also apply. Because of this, UHNWIs may be concerned with tax planning to reduce those liabilities.  
• Maximizing privacy. Confidentiality can be a concern for anyone when passing on assets to others. High-net-worth individuals may be especially sensitive to privacy, as they may not want other family members, creditors, business partners, or others to know just how much wealth they are passing on. Estate planning that leverages trusts and other tools can help keep assets out of probate, which involves a public record.
• Asset Protection.  Protecting and preserving wealth for yourself and your family is another common concern for UHNWIs.  Because the United States is one of the most litigious countries in the world, proper asset protection planning can protect wealth from law suits, creditor claims, a future divorce of an heir and potential gift, estate and generation skipping transfer taxes.
• Engaging in philanthropy. Many people who have a lot want to give a lot to their communities or charitable organizations. During your life, you can oversee the mission and vision of this giving, but to ensure it falls within your desired scope and values after you’re gone takes solid estate planning.

Some other concerns that UHNWIs might have when approaching estate planning include governance and global asset management. Governance refers to using legal options such as trusts to create policies about how wealth should be managed and used. This can be especially important when leaving wealth to individuals who are not used to managing a lot of assets.

What Role Might Gifting Play?

Gifting can play a role in large estate management, as it reduces the amount of assets that must be passed to others during probate processes. It also allows someone with a high net worth to share their assets with others during their lifetime.

However, gifting should be approached with caution and a full understanding of the financial, legal, and tax ramifications. Without the right approach, large gifts can create serious tax issues for everyone involved.

Use of a Family Limited Partnership

One tool that UHNWIs might consider is the FLP. This consolidates family assets under a unique ownership structure that can reduce some burdens associated with probate and taxes. This is a fairly complex option that requires a lot of pre-planning and may involve more administrative time and expense than some other options. However, if you have more than $2 million in assets or your family holds numerous real estate assets, the benefits could outweigh those considerations.

Consider the Complexity of Your Family

For high-net-worth individuals who are concerned with leaving a legacy, family dynamics and complexity may be important. You may want to ensure, for example, that multi-generational wealth is passed on to your children, grandchildren, and great-grandchildren.

However, you don’t know what the future might hold for your loved ones and heirs. People may marry, divorce, and remarry, for example. Blended and non-traditional family units may evolve over the course of time. If it’s not clear how inherited assets are to be treated, your heirs may lose some of their wealth in divorces or other proceedings.

It is fairly well known that Cornelius Vanderbilt was one of the richest persons in the United States at the time of his passing. He had amassed a net worth of approximately $105 million when he died in 1877. But, according to “Fortune’s Children: The Fall of the House of Vanderbilt”:

“Within thirty years after the death of the Commodore Vanderbilt in 1877, no member of his family was among the richest people in the United States…. When 120 of the Commodore’s descendants gathered at Vanderbilt University in 1973 for the first family reunion, there was not a millionaire among them.”

Proper estate and wealth planning can prevent this tragic lost of wealth. Today’s estate & wealth planning and protection techniques can protect and preserve an estate. For example, a $1 million estate left to heirs through the right kind of planning can grow to be worth $10 billion over five generations. This is done by protecting the estate from taxes, divorces and creditor claims.

Good estate planning can protect your assets and ensure they stay with your family.

Consider Your Business Assets Too

Many high-net-worth individuals have a wide variety of assets, including business investments. Whether you own one or more companies or are a majority shareholder in an enterprise, these assets must be considered when you plan your estate.

You may want to consider succession planning, for example. What happens to businesses you own or manage if you pass away? If your business brand is part of your legacy, you may want to have a plan in place for it to be protected or to pass to someone you trust to manage it appropriately in the future.

Work With Experienced Attorneys to Protect and Pass on Your Wealth

It’s impossible to create a complete guide to estate planning for ultra-high-net-worth individuals. There are too many complex scenarios to consider, and too much relies on the unique factors associated with each individual or family.

However, you can see that the process is complex and that there are many legal, financial, and even social considerations to account for. Working with a legal team that is experienced in helping individuals with high net worths can help you make estate planning choices that protect your assets and your legacy. Reach out to the Law Offices of Boyd & Boyd, P.C., at 508-444-9688 to find out more about how we can help you achieve your long-term legacy goals.