The wealthy often use trusts to protect their assets from court orders, preserve their privacy, and manage unique assets such as forests, art, mining interests, and vacation properties. Trusts can be a great wealth management tool, especially for tax and estate purposes. You don't have to be a billionaire to benefit from them, so it's worth consulting with a lawyer or accountant to see if they are right for you. Trust funds are often seen as a way for the very rich to pass on their fortunes to their children and grandchildren before death.
For example, wealthy parents and grandparents may create college trust funds to pay for their children's post-secondary education. To prevent this, lawmakers introduced the gift tax. A grandparent can also liquidate a trust with money that will be invested by their fiduciary child for the beneficiaries of their grandchildren. According to ProPublica's analysis, more than half of the country's 100 richest people have used GRATs (Grantor Retained Annuity Trusts) and other trusts to avoid wealth tax.
Congress created wealth tax more than a century ago in response to growing inequality and the rise of ultra-rich families such as the Mellons and the Rockefellers. The gap between rich and poor in America has widened, and dynastic wealth may be a factor. However, for families who are not ultra-wealthy, there are alternative vehicles that may be more efficient than college trust funds. When the tax rate is applied to transferable assets, it redistributes the wealth of the very rich.
UGMA (Uniform Gifts to Minors Act) accounts are limited to money and financial securities, while UGTA (Uniform Gifts to Minors Trust Accounts) may contain tangible and even risky assets such as works of art and real estate. Trusts can also be used to ensure that children and descendants are taken care of after death. Ultimately, trusts can be an effective way for wealthy people to protect their assets and pass them on to future generations.
