A Family Bank Trust is a form of irrevocable life insurance trust; also known as a Generation Skipping Transfer Trust or Legacy Trust. The trust allows its creator to minimize transfer taxes and maximize the legacy left behind to children, grandchildren and future generations.
The Generation Skipping Transfer Tax (GSTT) applies to both outright gifts and transfers in trust to either related persons who are more than one generation below the donor or to an unrelated individual who is more than 37½ years younger than the donor. Now that the estate, gift and GSTT exemption amounts are unified at $5.43 million for 2015, with proper planning significant amounts of wealth can be transferred without transfer taxes being imposed.
Why a Family Bank Trust?
A Family Bank Trust can help accomplish multiple goals:
- Passes wealth from generation to generation without the burden of transfer taxes.
- Minimizes a beneficiary’s potential to mishandle an inheritance and keeps trust assets out of the reach of a beneficiary’s creditors or divorcing spouse.
- Promotes positive behavior in beneficiaries by requiring that they adhere to specific standards in order to be entitled to trust distributions, such as graduating from college, maintaining a career, and getting married.
In next blogpost, we will discuss how life insurance play a role in a family bank trust.