I still remember in law school decades ago, when we asked each of our estates and trust profs how they planned to pass their assets and they both said outright to surviving spouse—NO trust as they didn’t want to hamper the survivor in any way even if it meant taxes would be paid that could have been avoided.
Back then estate taxes were levied on smaller net worth estates too. The professors just didn’t want to tie their surviving spouses’ hands.
When my SisIL died, she left some assets in a trust. Once assets were all distributed to her surviving brothers, over the next 2+ years it was dissolved, so they didn’t have to deal with the trust did any extended period of time.
@HImom I fully understand the sentiment. Between fees and negligent management, you come out ahead to pay the tax outright. You lose 40% to taxes but you lose more over the long run. For short term, it may have its use.
@BunsenBurner, you are correct that a Dynasty Trust is irrevocable, although there are ways it can be dissolved. I’m not an attorney. Transfer taxes are paid on entry and then no estate taxes are due. My understanding is that if planned properly, the generation skipping tax (GST) can be limited or eliminated.
The House/Senate tax bill is great for folks at the high end – it will likely first double the estate tax exemption (from the House bill) and then eliminate the estate tax in 2024 (from the Senate bill).
Have you read about whether the tax bill would alter the GST? Presumably, under the new law, one should never pay GST as one can always give to one’s heirs without estate tax and then they can give to their heirs without estate tax. But I haven’t seen it addressed.
Edit: just a bit more searching and I see the GST would be eliminated in 2024 along with the estate tax (only makes sense per the previous paragraph). At that point, trusts serve an asset protection purpose and also to keep money from people before they are ready to manage/spend it responsibly but will no longer be needed for estate planning.
Thanks for the info. I am trying to weigh saving for college or saving for “anything”. Maybe we will do a 529 and something else. I had heard of a grandparent gifting a grandchild a portfolio with all MN stocks and I thought that was a cute idea.
I’m a little unclear as to your exact point on taxation of dynasty trusts (or “perpetual trusts” as they’re sometimes called), but one of the chief benefits is that transfer taxes are paid only once, at the creation of the trust. Because the trust assets are legally owned by the trust itself, and not by the beneficiaries, family wealth can then pass from generation to generation free of additional estate or GST taxes. It’s basically a giant tax-avoidance scheme. The Obama administration tried to change this by making each generational change in beneficiaries a taxable event, but Congress didn’t take them up on it. Elimination of estate and GST taxes would make dynasty trusts much less appealing. Some might still want to use them to exercise “dead hand” control over family wealth or to use spendthrift provisions to protect their heirs against creditors, but the tax advantages would be gone.
That is precisely what I meant. Someone hinted that there are no estate tax consequences for such trusts which is not true. The initial transfer to an irrevocable trust is a gift and is subject to gift/estate tax exemption both at the federal and state levels. While federal estate tax might evaporate soon making dynasty trusts less appealing, don’t forget about state taxation of estates. In my state, gifts are unlimited, but anything left in my estate above my (currently roughly $2.2M) personal exemption will be taxed. I don’t see the state getting rid of that tax any time soon. 
@BunsenBurner, I agree re state estate taxes. My state isn’t getting rid of them.
It’s a too complex to go into, but in our case, no gift tax was needed on the way in, estate tax if it remains, will not be owed, and I think GST is likely zero or very small. Lots of work done on this years ago with crackerjack lawyers. Not clear it was worth it with the benefit of hindsight, but as you point out, state taxes probably make the structure sensible even in the absence of federal taxes.
Many families just need to look at what is going on in their state, with their particular situation. I know a military retiree H/W who just relocated to Las Vegas, as Nevada doesn’t tax military pensions…close enough to family having ‘home base’ there.
A large undeveloped property (550 acres) surrounded by city was sold in my local area by a family patriarch who is 98, You can bet the family got great tax advice and structured all accordingly. Parts of the property have been owned by the family since the 1830’s.
H and I have enough estate to manage well for us and hopefully pass on some financial resources to offspring. Expecting first grandchild in May, and retire in 4 years. Still a ‘work in progress’.
It saddens me that many, many people work so hard their whole lives to save and then want to cheapen out on getting good tax and estate advice — instead of professionals they want to do it themselves or use the Internet. So me, such actions are penny wise, pound foolish. Often more of their hard-earned savings goes to taxes than if they had spent a bit of money to have a professional help them and try to minimize their tax consequences and that if any heirs.
Amen, HIMom. Consequences of not planning right can be anywhere from pretty sad to devastating.
Looks like shawbridge got good advice as the trust seems to serves his purposes well.
@HImom, I agree re advisors. I did a lot of the work more than 10 years ago and some 30 years ago. The work I did 25 years ago after seeking out a proactive tax accountant probably saves me $10K per year. But, I did a very active search for advisors in each case. Alas, the tax accountant is retiring and his replacement does not seem nearly as flexible or creative.
The work I did 10+ years ago was aimed at asset protection and estate planning. Depending upon where we go with estate taxes, it would have save lots of money. I’m still wondering if Susan Collins and two of Ron Johnson, Jeff Flake, Bob Corker or John McCain will hold out on what comes out of conference.
My beloved relative was very ill and told for years to “get affairs in order.” When I was told we should visit her ASAP, I did some quick research and talked with another relative who is an attorney in her state to learn that it would save her heirs at least 6 figures if she worked with an estate attorney and made a simple trust. She was agreeable and we did everything, including have the attorney come to her home twice that weekend. She died peacefully, knowing that her heirs instead of the govt got her assets. The heirs are very grateful she was willing to maximize the assets she conveyed.
That said, one has to do due diligence and get a good professional—not all are of equal quality, sadly.
Most states don’t have an estate tax at the state level. At present only 14 states plus the District of Columbia have an estate tax. Six have an inheritance tax, but two of those (Maryland and New Jersey) have both an estate tax and an inheritance tax, so it’s really only 18 states plus DC that have either or both. And the trend is definitely away from these types of taxes. Indiana repealed its inheritance tax in 2011, Tennessee repealed its estate tax in 2016, and New Jersey will phase out its estate tax by 2018 (though apparently it intends to retain its inheritance tax). Of those retaining such taxes, many are raising exemption levels. I believe all states with inheritance taxes exempt surviving spouses, and some fully or partially exempt other close family members as well.
It’s also going to become costlier for states to administer estate taxes if the federal estate tax is eliminated, because most states now piggyback on federal filing requirements. They’ll be on their own for administration if the federal estate tax disappears.
If you’re worried about state estate taxes, you don’t need a dynasty trust. Just move to a state without an estate tax. There are dozens to choose from. There’s an argument here in Minnesota that our estate tax is a pretty strong motivator for our more affluent residents to leave the state upon retirement, taking their accumulated wealth and spending power with them. I’m not sure that’s been demonstrated with hard empirical studies, but at an anecdotal level I can report that estate taxes combined with the harshness of Minnesota’s winters have me planning to leave the state upon my retirement (even though our winters have moderated considerably in the time we’ve been here).
A now deceased friend of mine had a terrible situation. His dad died during what I believe may have been a short period of time where the government could get 55% of his estate. The father was a well known MD with an estate of maybe 15 million bucks. The government got a huge chunk, and the dad’s attorney was the named executor, and really didn’t consider the best insterests of the son’s when he made decisions. He seemed to milk things all he could. My friend was a very responsible adult, and was relatively close to his dad. We don’t know whether the dad just followed terrible advice, didn’t bother to check things out ahead of time, or what.
How much did the son get? That’s when an irrevocable trust could help until he comes of age. If the father didn’t create a common A-B-C type trust well before passing, it may be that the dad wasn’t the type staying on top of finances. Not everyone is good at tying loose ends even if they love their survivors.
Well, the compromise bill will likely keep the estate tax, so there will be something to piggy back on. 
Even if there was nothing to piggy back on, I don’t expect my state getting rid of the estate tax anytime soon.
Of course not everyone needs a dynasty trust, and a gift to such trust is not the only way to minimize estate tax… just like moving to a different state is not for everyone either. But both are legitimate estate planning tools.
" I believe all states with inheritance taxes exempt surviving spouses, and some fully or partially exempt other close family members as well."
True. Spouses are exempt at the federal level - until they die. States too have “unlimited marital deduction,” so the widow(er) will not have to scramble to come up with taxes if the deceased died with more $$ in the estate than personal deduction. However, this unlimited deduction just postpones taxation and allows the survivors to spend that money. But when the surviving spouse dies, whatever is left in his or her estate above the 2X (or 1X if certain formalities are not met) personal deduction will be taxed.
For most folks, estate taxes are less of a worry than other aspects of estate planning. If one has a blended family or have been married before, it is important to make sure that there are no unpleasant surprises for the survivors.
How many of you have heard of a QTIP?
https://mobile.nytimes.com/2012/10/17/business/qtip-trust-guides-bequests-beyond-the-grave.html
Ah yes, shades of 1980s law school, qtip trusts! Thanks for the blast from the past, @BunsenBurner!
Still useful.