Dynasty Trust Laws

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What Are Dynasty Trusts?

A dynasty Trust is a device through which all of a person’s assets can be passed to many future generations.

In setting up the dynasty trust, the grantor must define the distribution of the trust wealth generation by generation. Through this process, the grantor can help ensure that countless future generations benefit. This is distinct from a standard will, which might leave all of the grantor’s property to a few people, who might squander it all and leave nothing for future generations.

With a dynasty trust, you not only retain the power to decide how your wealth will be distributed to your family members through generations. You can save them a lot money as well.

Tax Benefits of Dynasty Trusts

One of the main benefits of the dynasty trust is the fact that the transfer of the wealth through generations is exempt from estate taxes payment, or death taxes.

In other words, you can apply for a federal generation-skipping transfer tax (GST). Normally, parents pass their property to their children, who pass it to their children, and thus property is transferred down through the generations. The problem with this approach is that the property is taxed with each generation it passes to.

Dynasty trusts skip a generation and pass it directly to the next. In a dynasty trust, you could pass your property directly to your grandchildren rather than use your children as a middleman. In this way, your heirs won't have to pay taxes every time they pass the estate to another family member. It is important to mention that there are some limits to this exemption, as explained below.

Another advantage of the dynasty trust is that it can protect the grantor’s assets from creditors, so long as they remain with the beneficiaries of the trust.

Can a Dynasty Trust Be Modified?

Among multiple classifications, there are two main types of trusts: revocable and irrevocable. The dynasty trust is irrevocable, and once it is created, it cannot be modified by the grantor. In theory, it can last forever, as long as the grantor has descendants.

Of the states that allow dynasty trusts, however, some have imposed time limits. These time limits will end dynasty trusts before the trusts can reach great-grandchildren or any generations beyond that. For example, in Alaska, a dynasty trust cannot last for more than 1,000 year.

Some states still retain the common law rule against perpetuities, which, in this context, would prevent any trust from lasting longer than 21 years after the death of the last potential beneficiary alive at the time the trust was created.

However, there are states that have abolished this rule:

Should I Consult a Lawyer to Create My Dynasty Trust?

If you are planning on passing your trust wealth to your children and grandchildren, you definitely should talk to an estate planning attorney. Your attorney can prepare your dynasty trust with the list of your trust wealth distribution. Trust tax rules can be very complex and may require the attention of an experienced legal professional.

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Last Modified: 04-24-2015 10:14 AM PDT

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