The goal of estate planning is to apply the wealth you accumulate during your lifetime for your family’s, or other heirs’, greatest possible benefit.
The amount remaining after estate taxes obviously is important. But other factors are important, too.
Ideally the wealth you leave should be protected, so that nothing can deprive your heirs of the benefit you intend for them. And if wealth can be left in a form that permits tax-free investing, all the better. Better still is an estate so artfully structured that it becomes a tool for your heirs in handling their own personal finances.
A Model Offshore Trust is a blessing for your heirs in all those respects. It’s not just a bundle of investments. It is a piece of exquisite machinery that will continue to work year after year for further tax savings and your heirs’ long-term financial safety. It opens the door to all the advantages of offshore estate planning.
But estate planning is a complex topic. Even with its vast usefulness, a Model Offshore Trust is not a “magic pill” that by itself accomplishes all estate planning goals. The Trustee, in consultation with you as Trust Protector, can arrange estate-tax saving transactions for your Trust. But you almost certainly will need the help of a qualified adviser (see Passport Financial Planning Service) to work out a comprehensive estate plan that is right for your circumstances and that makes the best use of your Trust.
Fortunately, you don’t need to work out a complete estate plan before establishing a Model Offshore Trust for its asset safety benefits. The Trust is highly flexible; it can easily accommodate — and strengthen — whatever estate plan you decide upon, and it can do so even if that plan does not emerge until after you have funded the Trust.
The wealth you accumulate during your lifetime can provide an edge to your immediate heirs and their descendants — help in avoiding hardship, in developing their talents through education and professional pursuits and in seizing business opportunities. Your estate, no matter how large, can’t solve every problem that will come their way, but it can weight the odds of success heavily in their favor.
Gift and estate tax cut into the advantage you give your heirs. As of 2016…
- The effective threshold for gift and estate tax is $5.45 million.
- If you give away $5.45 million during your lifetime, any additional non-exempt gifts are taxed at 40%.
- If the total of your lifetime gifts plus your remaining estate exceeds $5.45 million, the excess is taxed at 40% (with a credit for any gift tax you paid).
- To the extent they exceed a total of $5.45 million, gifts and bequests to grandchildren and other persons more than one generation younger than yourself are subject to an additional, generation-skipping tax at a rate of 40%.
Depending upon the size of your estate, transfer taxes might reduce the wealth available to the next generation by more than one-third and can take away as much as 66 cents of every dollar you earmark for your grandchildren… if you do nothing to keep that from happening. And, unlike any other tax, paying it doesn’t bring the problem to an end.
Unless you plan carefully, the wealth you leave will contribute to the taxable estates of your heirs. If they are as successful as you have been, they will relive your estate tax problems, generation after generation. In the long run, the valuable benefit of offshore estate planning is getting family wealth permanently out of the U.S. tax system.
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