What Role Do Trusts Play in Multi-Generational Wealth Transfers?
Wealth accumulated over a lifetime is meant not just for the benefit of the current generation but also to support future generations. Trusts have long been used by families to confirm the orderly and strategic transfer of assets while minimizing taxes and maintaining control over how wealth is used. Trusts are governed by a body of laws and require careful planning.
Our experienced estate planning lawyer in Dublin, Ohio, can provide assistance in structuring and administering trusts that achieve a family’s long-term goals. Here, we’ll discuss the role of trusts in multi-generational wealth transfers and how a lawyer can guide families through the process.
What Is a Trust?
At its core, a trust is a legal arrangement where one party (the grantor or settlor) transfers assets to another party (the trustee) to manage for the benefit of a third party (the beneficiary). Trusts can be either revocable (modifiable by the grantor during their lifetime) or irrevocable (typically not modifiable without the beneficiary's consent).
Trusts can serve various purposes, including:
Managing assets during the grantor’s lifetime and after death
Reducing estate and gift taxes
Protecting assets from creditors or spendthrift beneficiaries
Trusts exist to assure that a legacy is preserved for future generations
Why Use Trusts for Multi-Generational Wealth Transfers?
Trusts offer several advantages when planning for multi-generational wealth transfer.
1. Control Over Distribution
One of the most significant advantages of a trust is the control it provides over how and when assets are distributed. For example, a grantor can specify that funds be distributed only when a beneficiary reaches a certain age, completes education, or meets other conditions.
2. Asset Protection
Trusts can shield assets from creditors, lawsuits, and even divorcing spouses. This is particularly important when wealth is transferred to future generations who may be inexperienced in managing large sums of money or face financial instability.
3. Tax Planning
Certain types of trusts can be used to reduce estate, gift, and generation-skipping transfer (GST) taxes. While Ohio no longer has a state estate tax, federal estate tax laws still apply, and high-net-worth families must plan accordingly.
4. Avoiding Probate
Assets held in a trust typically bypass the probate process, allowing for a faster and more private transfer of assets upon death. This can reduce legal costs and delay while keeping the family’s financial affairs confidential.
Trusts can be used to promote family values, fund charitable causes, or assure business continuity. They can also include specific directives about family traditions, philanthropy, and education goals.
Types of Trusts Commonly Used in Multi-Generational Planning
There are a couple types of trusts that are used when planning for multiple generations.
1. Dynasty Trust
A dynasty trust is specifically designed to last for multiple generations, potentially avoiding estate taxes at each generational level. While Ohio has adopted the Uniform Statutory Rule Against Perpetuities, which limits the duration of a trust to 90 years (with exceptions), dynasty trusts can still be a powerful tool in wealth preservation.
2. Irrevocable Life Insurance Trust (ILIT)
An ILIT removes life insurance proceeds from the grantor’s taxable estate, allowing those proceeds to pass to beneficiaries tax-free. It can be an efficient method of passing wealth to future generations without incurring estate tax.
3. Generation-Skipping Trust
This type of trust allows assets to skip a generation and go directly to grandchildren, potentially avoiding estate taxes that would be assessed if the assets passed through the children first.
4. Spendthrift Trust
A spendthrift trust protects beneficiaries from squandering their inheritance or from creditors. It limits the beneficiary’s access to trust principal, distributing funds in controlled amounts.
5. Charitable Remainder Trust (CRT) and Charitable Lead Trust (CLT)
They allow the grantor to support a charity while also providing income to beneficiaries and reducing estate tax liability.
These trusts combine philanthropy with estate planning, but it’s important to find the option that suits your needs.
The Importance of Legal Guidance in Ohio
Setting up a trust involves much more than just drafting a document. It requires a deep understanding of federal and state laws, family dynamics, financial goals, and tax implications. This is where an experienced Ohio estate planning attorney becomes crucial.
1. Ohio Trust Law
According to Ohio Laws, Ohio’s trust laws are based on the Ohio Trust Code, which largely mirrors the Uniform Trust Code adopted by many states. However, there are unique provisions in Ohio that a local attorney will understand, such as:
The 90-year rule under the Rule Against Perpetuities
Ohio’s procedures for modifying or terminating trusts
State-specific trustee duties and liabilities
Medicaid and long-term care planning implications
A lawyer confirms that the trust complies with these laws and is structured to withstand legal scrutiny.
2. Tailoring the Trust to the Family’s Needs
No two families are alike, and neither are their financial goals or concerns. An attorney can craft a trust that reflects:
Specific conditions for distribution (e.g., substance abuse concerns, financial maturity)
Family business succession plans
Inclusion of adopted or stepchildren
Provisions for special needs beneficiaries
This level of customization requires a legal expert who can listen carefully, ask the right questions, and translate goals into enforceable legal language.
3. Tax Planning Expertise
An Ohio estate planning lawyer will work alongside accountants and financial advisors to develop tax-efficient strategies. For wealthy families, this might include:
Structuring irrevocable trusts to avoid estate and gift taxes
Utilizing the generation-skipping transfer (GST) tax exemption
Minimizing income taxes on trust assets
4. Trust Administration and Trustee Guidance
Creating a trust is only the first step. Administering it properly over decades requires consistent attention. An Ohio lawyer can provide ongoing guidance to trustees, confirming they:
Follow the trust terms precisely
Manage trust investments prudently
Distribute assets appropriately
Prepare accurate trust accountings and tax filings
Trustees who breach their fiduciary duties may be held personally liable, making legal advice essential.
5. Updating and Modifying Trusts
Life changes—such as births, deaths, divorces, or changes in tax law—may necessitate a revision of the trust. While revocable trusts can usually be modified or revoked by the grantor, irrevocable trusts require more nuanced strategies. In Ohio, a lawyer can help with:
Trust decanting (moving assets from one trust to another)
Petitioning the court for modifications
Using trust protectors to enact changes
Law offices like ours can discuss these with you whenever these changes come up as necessary in your life.
Case Study: How a Lawyer in Ohio Facilitated a Three-Generation Wealth Transfer
Consider a real-world example: A couple in Cleveland with a $10 million estate wanted to assure their wealth supported their children and grandchildren while avoiding unnecessary taxes. An Ohio estate planning lawyer helped them:
Establish a revocable living trust to manage assets during their lifetimes and avoid probate.
Create a dynasty trust funded with $5 million, utilizing their federal generation-skipping tax exemption.
Set up an ILIT to hold a $2 million life insurance policy, removing it from their taxable estate.
Include customized provisions for education funding and health care expenses for grandchildren.
The lawyer also advised the named trustee on ongoing administration and compliance, confirming the trust would serve the family for generations.
Contact Us Today
Trusts are an essential tool for families aiming to preserve wealth across multiple generations. They must be carefully designed and administered to function as intended. Qualified estate planning lawyers play pivotal roles in helping families, from choosing the type of trust to drafting documents. Consulting The Law Offices of DuPont and Blumenstiel is an important step to take to protect your family’s future. We serve clients in Dublin, Columbus, Plain City, Marysville, Delaware, Powell, and Hilliard. Reach out today.