Interesting article from the Los Angeles Times. Apparently many Baby Boomers are frowning on leaving an inheritance for their children, including many in the millennial generation. A U.S. Trust (Bank of America’s trust division) survey finds that 49% of millionaires in the Baby Boomer generation don’t plan to leave their children an inheritance. A variety of factors may be in play: (1) people living longer (and corresponding fear of outliving savings), (2) the economic fallout on people’s retirement savings, (3) enjoying spending the wealth that they themselves worked hard to accumulate, (4) helping support elderly parents or adult children who’ve been displaced by economic woes, (5) don’t want to spoil kids or give them a sense of entitlement, and other issues. One Baby Boomer said, “If [my kids] can’t make it on their own now, they can never make it. I’ve done my job. Now I’m going to enjoy life.”

This may also be tied to a developing trend among the very wealthy – billionaires pledging to give their fortunes to charity.  From a tax and estate planning perspective, Baby Boomers would be well advised to remember the increased gifting opportunities available during 2011 and 2012 ($26,000 combined gifts from husband and wife per donee each year, $5 million lifetime gift tax exemption). In some situations, it may also make sense for Baby Boomers to give their children inter-family loans to help with the purchase of a car, home, or business interest, or to consider various business succession options.  Additionally, leveraging trusts, especially multigenerational trusts, is a wise idea in some cases to preserve great amounts of wealth for future generations. Charitable giving is always a wonderful idea to help others and leave a legacy of generosity.

If many of these Baby Boomers disclaimed inheritances from their parents, this study would be misleading, because the bulk of the inheritance would already be waiting in trust for the millennials. If the study is accurate, it may mean that the great structural transfer of wealth between generations (estimated in the trillions) may be much ado about nothing, as Shakespeare would say. Please call me or email me if I can help you or your family with these important estate planning issues.

(c) 2011, Stephen M. Johnson, Esq.

Bloomberg provides an excellent and accessible intro to dynasty trusts and the great features families can use to multiply wealth across generations. The article highlights some legal differences between various dynasty trust jurisdictions – such as New Jersey, Pennsylvania, and Delaware – and some unique provisions of Delaware trust law that may be especially attractive to estate planning clients and families contemplating business succession issues, including expanded protections against creditors and civil law suits (including lurking divorces).

The growth of dynasty trusts as a tool in the estate planner’s portfolio, especially for clients with significant wealth or business interests to be transferred to future generations, has been made possible by a phenomenon of states repealing their Rule Against Perpetuities statutes. A growing number of states have repealed the Rule Against Perpetuities, a relic of the old common law of property, and thus allowing perpetual or dynasty trusts. In the Kansas City area, Missouri allows dynasty trusts, but Kansas does not (having refused to repudiate the Rule Against Perpetuities). Currently, 28 states (and the District of Columbia) (56% of American states) allow dynasty trusts: Alaska, Arizona, Colorado, Delaware, Florida, Hawaii, Idaho, Illinois, Kentucky, Maine, Maryland, Michigan, Missouri, Nebraska, Nevada, New Hampshire, New Jersey, North Carolina, Ohio, Pennsylvania, Rhode Island, South Dakota, Tennessee, Utah, Virginia, Washington, Washington, D.C., Wisconsin, and Wyoming. Expect that number to continue to grow steadily in the future, as more states vie for trust business.

Delaware may well become the bastion of trust law, just as it’s already the bastion of corporate law, thanks to its favorable corporate law statutes and the Chancery Court’s business-friendly jurisprudence.

(c) 2011, Stephen M. Johnson, Esq. All rights reserved.