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Gift of $10,000,000 Coupled With a Dynasty Trust
(6.00% Growth Assumption)

From the Desk of
Robert B. Ritter, Jr.
President, InsMark, Inc.

Release Date: February 2011

There is considerable activity among advanced planners regarding the new no-tax gifting limit of TRA 2010 (up to $10,000,000 per couple) that is available through 2012. This article examines the effectiveness of such gifts when coupled with a Dynasty Trust.

Robert and Marianne Copeland are ages 60 and 55 with liquid Net Worth of $25,000,000. They want to see the effect of a $10,000,000 gift on 1) Their accruing Net Worth and 2) Wealth to Heirs. They have assumed growth of their Net Worth to be net 6.00% after accounting for the cash flow for their living expenses. The following Wealthy and Wise^® graphic compares “before” and “after” Net Worth. 

Net Worth of $25,000,000 growing to $86,000,000 is OK with the Copelands provided the increase in Wealth to Heirs is significant.

Consider the Copelands as “Generation #1”. The heirs’ analysis that follows evaluates their gift of $10,000,000 as it applies to three additional generations of heirs (assuming 30 years in a generation). 

Below are the details of the Dynasty Trust initially funded with $35,000,000 of life insurance:

Combined Death Benefit Year 30: $84,153,760

States that allow Dynasty Trusts are: Alaska, Delaware, District of Columbia, Idaho, Illinois, Kentucky, Maine, Maryland, Michigan, Missouri, Nebraska, Nevada, New Hampshire, New Jersey, North Carolina, Ohio, Pennsylvania, Rhode Island, South Dakota, Tennessee, Utah, Virginia, Wisconsin, and Wyoming. (There is no requirement to reside in the state selected.)

As reported in the March 5, 2011, edition of the Wall Street Journal, a proposal to limit estate tax-free Dynasty Trusts to 90 years appeared a few weeks ago on a list of prospective estate provisions in President Obama's 2012 budget – so the perpetual value of this “Family Bank” technique could be significantly affected. (As proposed, new legislation would not be applicable to trusts in effect prior to such legislation.) Coupled with the $5,000,000 per person gift exemption in 2011-2012, use of this strategy for those with significant wealth should be considered sooner rather than later.

A Dynasty Trust analysis will be made available on an interactive and customizable basis in a forthcoming enhancement to the InsMark Illustration System (on the InsCalc tab). Those not licensed for the InsMark Illustration System or Wealthy and Wise^® who want more information about these Systems should contact an InsMark Account Executive at 1-888-InsMark (467-6275). Institutional inquiries should be directed to David A. Grant, Senior VP - Sales, at 1-925-543-0513 or dag@insmark.com.

Important Note: The information in this article and any referred material is for educational purposes only. In all cases, the approval of a client’s legal and tax advisers must be secured regarding the implementation or modification of any planning technique as well as the applicability and consequences of new cases, rulings, or legislation upon existing or impending plans.

IRS Circular 230 Disclosure

In order to comply with requirements imposed by the IRS which may apply to this document (including any attachments, enclosures, or referred material) as distributed or as re-circulated, please be advised that the material contained herein is not intended or written to be used, and it cannot be used, by anyone for the purposes of avoiding any penalty that may be imposed by the Internal Revenue Service under the Internal Revenue Code. In the event that this document (including any attachments, enclosures, or referred material) is also considered to be a “marketed opinion” within the meaning of the IRS guidance, then, as required by the IRS, please be further advised that the material contained herein is written to support the promotions or marketing of the transactions or matters addressed by the material contained herein, and, based on the particular circumstances, you should seek advice from an independent tax advisor.

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