Was chatting with a doctor buddy and ran through a potential legal structure for an American family that contains one, or more, high earners.

It goes like this (picture at the bottom)…

Step One: Once you get married, you split the family balance sheet in half.

Step Two: As you have kids you:

• set up 529 accounts for each kid 
• set up minor accounts for each kid

Gift into kids 529 and minor accounts as desired and subject to gifting rules. 

Step Three: Main wage earner, often this is spouse with greatest potential for adverse legal judgements, gifts some, or all, of balance sheet to an irrevocable Grantor Trust that benefits other spouse and kids. Note – irrevocable. You can insert clause that spouses need to be together for a spouse to benefit else kids only. Look into lifetime gift and generation skipping tax exemptions for Settlor of the Grantor Trust. Never gift capital that you might need in your lifetime.

Step Four: Both spouses hold residual assets in name of revocable living trusts. Wills are structured to flow assets to Living Trusts. This makes it easier for your survivors to administer your affairs.

Step Five: Dynasty Trust receives any elder generation inheritance or gifting. This is to avoid taking capital directly that one generation is likely to pass to their kids or grandkids. Consult an expert about generation skipping taxes.

Step Six: All wills and living trusts flow funds to Dynasty Trust eventually.

Capacity to create, and implications of, the above structure vary by jurisdiction so take professional advice. This is a gross simplification but will point you, or your professional adviser, in the right direction.

A picture of the structure follows…

This shows why people call the estate tax a voluntary tax and one way families structure around tax.