Trusts: A solution to Taxes?

By Shawn Chandok

One of the most important overlooked facts in estate planning is what parents do to ensure their children have a successful future. The basic goal of parents (whether wealthy parents or poor parents) to ensure their child’s future should be to “teach money management skills to their children when they are young.” One of the most popular strategies used by parents before the bubble burst was the grantor retained annuity trust. The basic idea behind this trust was that parents would bet on an asset (usually real estate) to appreciate for a time period of 2-10 years. Then when the trust hit maturity, the children would receive the appreciated asset tax free. An example of this asset gift would include first homes for newly married couples. Now that real estate assets have dramatically decreased in value, it seems as if this strategy is useless. However, there is one loophole to ensure your child receives your gifts. It is stated that “The grantor can swap out the original asset for one of equal value without penalty and start another trust with the original asset, if he believes it unfairly lost value.” Although grantor retained annuity trusts (GRATs) are excellent for giving money/wealth to children tax free, some have said they aren’t very useful in giving money to grandchildren. Another option recommended for giving gifts to grandchildren is a generation skipping trust.

Source#1
Source#2
Source#3