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The Moneyist

‘Do I leave them to pay capital-gains tax on the dynasty trust or estate tax on my personal account?’

Dear Quentin,

About a decade ago, I set up dynasty trusts for my two children. I funded them with cash and equities that I transferred from my personal stock account. While I am in relatively good health, I just turned 80 and I know I am in the home stretch. The equities that I transferred to the trusts were mostly “Magnificent Seven” companies. These stocks have, over the years, appreciated significantly.

The dynasty trust allows for these trusts not to be considered when determining my estate tax, but whenever they are sold by my descendants, they will have to pay significant capital gains. If, however, I transfer these stocks back into my personal stock account, they will be subject to the step-up rule and thus not taxed at all and will instead be valued at the date of my death. They will, however, then be subject to 40% estate tax.