Wealthy New Yorkers can ask their New York estate planning lawyer about ways for their heirs to avoid taxes through estate planning devices. One of those devices is known as a generation skipping trust. A generation skipping trust, which is also known as a dynasty trust, is crafted so that the trust assets can avoid estate taxes upon the tax payer's children's deaths and longer. While there is a $2 million limit, it is a handy way for people to avoid New York's hefty 16 percent estate tax.
While New York has a law that limits the length of time of a non-charitable trust, New Jersey has repealed its rule against perpetuities. While the rule against perpetuities can confound even a seasoned NY estate attorney, it means that there is no limit in duration of a trust in this situation.
While dynasty trusts can be helpful for estates in excess of $5 million or more, there are certain situations where smaller estates can use a generation skipping trust; such as a couple planning their estate for their only child. While this can be a good estate planning tool, some journalists see dynasty trusts as a way for the rich to stay rich without having to pay taxes. Ray D. Madoff from the New York Times complains that since many states have abandoned the rule against perpetuities, it has opened the door for the rich to keep their wealth in trust funds that are protected from taxes.
In essence, Madoff claims that this particular estate planning device is creating an American aristocracy. It is definitely a booming business. One study cited by the New York Times found that close to $100 billion in trust funds moved to states that repealed their perpetuities rule.
It is seen as a possibly negative type of trust for heirs because an ancestor can dictate how much wealth generations of beneficiaries receive; bypassing the wishes of immediate parents and their children. In other words, kids can become spoiled "trust fund kids" even if their parents don't want them to be.
While there are pros and cons to any estate planning device, it is best to meet with a New York estate planning lawyer and decide which estate planning tools are best for you.