Legacy Trusts: 3 Things You Need To Know

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Wondering how you can pass down assets to your family without paying taxes? 

And without your heirs blowing all the money that you spent your lifetime earning?

This article explains how you can use a legacy trust to accomplish this. 

We’re covering: 

  • what is a legacy trust
  • how does a legacy trust work
  • the benefits of a legacy trust

So, let’s dig in.

Many families lose up to 55% of their estate to taxes, creditors, and lawsuits. And 33% of heirs blow their inheritance. 

If you want to create a legacy trust to protect your estate, fill out the form below for a free consultation. Free consultations are first come first serve. 

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What Is A Legacy Trust?

Legacy trusts are 3rd party irrevocable trusts

They give you broader tax reductions and asset protection.

Legacy trusts remove assets from the grantor’s estate

The assets get placed into a second estate out of reach for creditors and the IRS. 

Legacy trusts give families access to the Generation-Skipping Tax Transfer exemptions. 

Legacy trusts allow families to skip taxes like gift tax, estate tax, and generation-skipping taxes. 

Benefits Of A Legacy Trust

Legacy trusts reduce taxes on the estate as it’s passed down between generations. 

Normally, each time money gets transferred from one generation to the next it gets taxed. 

Legacy trusts take full advantage of the Estate Tax and Gift Tax Credits

This means that the legacy trust can serve as the family’s “savings” plan. 

A trustee will get named to manage the legacy trust. 

This trustee can pay for college education for future generations from the legacy trusts. 

The legacy trust can also provide income to children and grandchildren. 

Assets transferred to beneficiaries at the time of death are subject to probate and estate taxes. 

But legacy trusts transferring assets at a later date are not:

  • subject to the probate process
  • administered with court supervision 

Another benefit of legacy trusts are that they are separate and outside your assets. 

The legacy trust acts like a wall that can protect your assets from:

  • divorcing spouses of children
  • creditors
  • judgments against your family

Related: Consequences Of Not Probating A Will

How Does A Legacy Trust Work?

Let’s talk about how does a legacy trust work. 

Legacy trusts function as a second, protected estate. 

It removes assets out of your primary estate and places them into a secondary estate. 

This estate is in the form of a legacy trust. 

In this secondary estate, assets are out of reach from creditors. 

And your assets are protected from estate and death taxes. 

You set up your legacy trust and fund it with annual gifts or lump sum gifts. 

Ways To Use Legacy Trusts

You’re probably wondering how to use a legacy trust. 

An example is that you want to pass down a Dividend Index Fund from Vanguard

You would place your index fund into a legacy trust as a gift to a person or persons. 

You and the estate inside the legacy trust would not have to pay gift tax rates

That is, as long as it’s an amount lesser than the $11.8M lifetime gift tax exclusion

If the amount is more than $11.8M per person, you have to pay gift tax rates. 

But ONLY on any amount ABOVE $11.8M. 

The gift tax rate ranges between 18% to 40% of the amount gifted. 

But after the assets are gifted, the future appreciation of the asset is out of your estate. 

And it’s also out of the estate for future generations. 

Meaning that the future appreciation will not get taxed. 

Beneficiaries can pull out income from the legacy trust. 

But they cannot typically pull out the principal amount. 

The principal amount is left in the legacy trust to grow for generations. 

In the example of the Index Fund from Vanguard, your heirs cannot pull money out of the fund. 

But they can take distributions from the Index Fund. 

This allows the Index Fund’s principal to continue to grow for generations. 

And it keeps any one heir from getting reckless and blowing all of the money. 

The legacy trusts also protect the principal from creditors and estate taxes for each generation. 

Related: Difference Between Executor and Trustee

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Hiring A Reliable Legacy Trust Company

You need a reliable legacy trust company. 

A legacy trust company that’s inexperienced will set up your estate incorrectly. 

This means your heirs could lose hundreds of thousands of dollars in their lifetime. 

You and your heirs will get hit with estate taxes. 

Creditors and lawsuits can break through an improperly set up legacy trust. 

And divorcing spouses can claim the assets in the legacy trusts as their marital property. 

This is why you need a reliable legacy trust company. 

We have the experience needed to ensure that your estate and assets are protected.

This means that you don’t wrongfully lose money.

After you fill out the form below, we will set up your free consultation.

Talk soon.

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