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Megatrust(SM) Concept In General(1)
The Megatiust(2) is designed to permit the passage of significant wealth through multiple generations without the imposition of transfer taxes even though the trust beneficiaries have a beneficial enjoyment in the trust property virtually tantamount to outright ownership. A taxpayer places property into a trust, electing to allocate a sufficient amount of his or her GST exemption against the transfer so that the trust is wholly exempt from the Generation Skipping Transfer Tax ("GSTT").
The trust is designed to last the maximum term permitted by law. Rather than having the trust term measured solely by the lives of the descendants of the creator of the trust, it would be measured by the lives of the descendants of a well-known person or persons, subject only to the constraints of the rule against perpetuities.(3) The trust will be managed with the avoidance of wealth transfer taxes a primary consideration insofar as consistent with the objective of providing comfortably for the trust beneficiaries. Distributions will be permissible but might not be made even though retention might be undesirable from an income tax planning standpoint.
The trustee should take into account the transfer tax considerations prior to such distributions, and be encouraged to provide the "use" of trust assets rather than to make distributions, in the absence of a compelling reason to deviate from this policy. The trust beneficiaries will be expected to pay for their own "consumables." Thus, the trust will form an "asset pool" providing multigenerational benefits for the descendants of its creator. The spouse of the creator may be included among the beneficiaries, but careful attention must be given to the income tax consequences since the grantor will be taxed on the income unless distributions may be made to the spouse only with the consent of an adverse party.
The Megainsurancetrust(SM) Concept
The Megainsurancetrust is a classic version of the Megatrust -- a rule against perpetuities trust, planned and administered to be wholly exempt from transfer tax for its extended duration and to make only such distributions to its beneficiaries as are, in the trustee's discretion, necessary and advisable, taking into account the income and transfer tax-consequences of such distributions --funded, at least in part, by a life insurance policy or...