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What is a Dynasty Trust?
A dynasty trust, also commonly known as a “legacy” trust, allows a person to pass down assets to successive generations. It enables a grantor to decide how each generation will distribute property. It allows you to ensure that all future generations can benefit from your family’s wealth.
In a traditional will, a grantor’s control over the distribution of property stops with whomever he names as heirs. It is up to them to decide how those assets will continue down the family line. On the contrary, a dynasty trust gives the grantor complete control over multiple successive generations. These two differences are what set apart a dynasty trust from a traditional will.
A Dynasty Trust and Taxation. Can it Save You Money?
Under normal circumstances, whenever properties get passed down to other generations, taxes are applied through each transfer that occurs. However, property under the ownership of a dynasty trust receives tax-exempt status, including exemption from death taxes. These protections can shield your property from a considerable amount of taxes over many generations and significantly enhance your family’s wealth.
Generation Skipping Option
A dynasty trust gives a person the option of skipping a generation. For example, a parent with grandchildren might choose to skip the transfer of property ownership with his own children and instead pass it down directly to the grandchildren.
The Pros and Cons of a Dynasty Trust
Benefits
The tax advantages over multiple family generations make dynasty trusts a very popular option among very high net worth individuals. This estate planning strategy preserves family wealth for many lifetimes. It also eases the transfer process from one generation to the next by severely limiting the role of government bureaucracy.
In addition, your heirs and their children are protected from claims made by others against property that’s under the ownership of the trust. Since your family’s wealth is under the trust and not under the names of your heirs, anyone making a claim against one of them cannot gain access to any assets held in the trust.
Limitations
One of the main objectives of a dynasty trust is to allow future generations to make an income out of the property within the trust. On the other hand, keep in mind that dynasty trusts are “irrevocable.” Making any changes to them is extremely difficult. Therefore, if you are considering this type of trust, it is crucial that you think about possible scenarios that could unfold in the future such as changes in the family structure like a divorce or changes in property valuation.
Does a Dynasty Trust Expire?
Theoretically, a dynasty trust can continue for as long as time allows. However, some states have imposed rules that don’t allow a trust to continue 21 years after the death of the last known beneficiary.
However, some states, including California, have eliminated this rule. Instead, California allows the trust to continue 21 years after the death of the trust creator or 90 years after the trust was initially created.
Getting Legal Help with Setting Up a Dynasty Trust
Setting up a trust or any other type of estate planning document can be a time-consuming and complicated process. While a dynasty trust can provide tremendous benefits for your family’s legacy, setting one up correctly is absolutely crucial and requires the expertise of an estate planning attorney.
If you’re considering a dynasty trust or any other type of estate planning solutions, contact us today for a completely free consultation.
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