(Bloomberg News) Jeffrey Thomasson, 52, may pass on more than $100 million to heirs using an estate-planning strategy for avoiding gift and estate taxes.
Thomasson, who lives in Indianapolis, said he's funding a so-called dynasty trust set up in Delaware with $8 million of equity from the expanding financial advisory business he owns, Oxford Financial Group. Putting the assets in a trust, which he figures could be worth more than $100 million by the time he dies, means the money should go to his heirs without triggering federal gift, estate or generation-skipping transfer taxes.
"Why would I want to pay estate taxes on some really, really big number 30 years from now, if the IRS is giving me this opportunity?" Thomasson said.
A dynasty trust is used to pass money on to multiple generations of descendants while paying as little in taxes as possible. The trusts have no expiration date and there are no required minimum distributions, meaning their assets may grow for an unlimited number of future generations. While the trusts can be set up in many states, Delaware offers extra breaks, including stronger protection from creditors and exclusion of assets in divorce proceedings.
"It's an astoundingly powerful vehicle for generating long-term family wealth," said Neal Howard, chief fiduciary counsel for Philadelphia-based Glenmede, which manages more than $20 billion on behalf of individuals and families with $3 million or more in assets.
Interest in the trusts has risen because of the higher individual lifetime gift- and estate-tax exemptions of $5 million available this year and next, which means clients can put more tax-free money into the trusts, said Carol Kroch, head of wealth and financial planning for Wilmington Trust Co., a unit of Buffalo, New York-based M&T Bank Corp.
That limit will drop in 2013 to $1 million and the top federal tax rate on gifts and estates will rise to 55 percent from 35 percent, unless Congress acts. Gifts that skip a generation, such as from a grandparent to a grandchild, follow similar rules.
Northern Trust Corp., based in Chicago, has set up several dozen Delaware dynasty trusts on behalf of clients in 2011, compared with almost none in 2010, said Daniel Lindley, president of the Northern Trust Company of Delaware, who declined to provide more specific figures.
Protection in Divorce