A trust is a device that allows a person to transfer property or funds to another person in a controlled, regulated manner. There are many different types of trust instruments. A dynasty trust is an estate planning device through which all of a person’s assets can be passed to many future generations.

In setting up the dynasty trust, the grantor (the person creating the trust) must define the distribution of the trust wealth generation by generation. Through this process, the grantor can help maximize the benefits for the future generations. This is different from a standard will, which might leave all of the grantor’s property to a few people. Those people might then spend are sell it all and leave nothing for future generations.

With a dynasty trust, you can retain the power to decide how your wealth will be distributed to your family members through generations. In addition, you can save them a lot of money as well.

Are There Any Tax Benefits for a Dynasty Trust?

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

In most cases, you can apply for a federal generation-skipping transfer tax (GST). In most instances, parents will pass their property and monetary funds to their children, who pass it to their children. In this way, property is transferred down through the generations. The problem with this approach is that the property is taxed with each new generation it passes to.

Dynasty trusts can also skip a generation and pass it directly to the next. In a dynasty trust, you can pass your property directly to your grandchildren or grandchildren’s generation 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 or generation. 

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

It is important to mention that there are some limits to this exemption. However the exact details of the limitations will depend on your circumstances and what you hope to achieve. If you have any questions then you should contact a lawyer familiar with dynasty trusts.

Can a Dynasty Trust Be Changed or Modified?

Among the different types of trust 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, a dynasty trust can last forever, as long as the grantor has descendants.

Of the states that allow dynasty trusts, however, some have imposed various time limits and restrictions. For instance, some of 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 longer than 1,000 years.

Some states still apply the common law rule against perpetuities. In this context, the rule 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, some states have abolished this rule:

  • In Alaska, Utah, Maryland, South Dakota, Wisconsin, and Idaho, dynasty trusts can exist for 1000 years.
  • In the state of Delaware, dynasty trusts can last forever with personal property. With real estate property, there is a 110 year limit for dynasty trusts. However, the 110 year limit can restarted if the trustee takes certain steps or measures. Since there is no limit to the number of times a trustee could restart the clock and time limit, a dynasty trust in Delaware could potentially last forever.
  • California state laws will permit a dynasty trust to exist up to 21 years after the death of the trust creator, or 90 years after the trust was created (whichever happens first).

What Types of Problems Can Happen with Dynasty Trusts?

As with any type of trust, trust disputes and conflicts can arise. These can involve various issues including:

  • Conflicts Regarding the Property or Assets: In some cases, a trust might not state very clearly which types or items of property are involved. This can lead to disputes amongst the beneficiaries regarding which property will go to which person or generation. Such situations often result because of a poorly-written trust instrument. 
    • This can be avoided through clearer writing and more details regarding specific property or assets. The guidance of an attorney can be valuable in this regard, as they can help review the trust terms for accuracy.
  • Conflicts Over the Named Beneficiaries: Many disputes also arise due to concerns or uncertainties regarding which persons are the named beneficiaries. For instance, one family member might claim that a certain relative is not included in the trust property distributions. Alternatively, there may be disputes regarding the way that the different generations are defined, and which persons are included in a certain generation. 
    • Again, these types of disputes can usually be avoided through clear instructions and terms regarding the trust. 

These types of disputes can often be complex and may require legal action to resolve them. In some cases, damages may also be involved. This can happen for instance if a person experienced additional losses due to a trust conflict or issue.

Should I Consult a Lawyer for Help Creating a Dynasty Trust?

If you are planning on passing your trust wealth to your children and grandchildren, you should definitely consult with a wills, trusts, and estates lawyer. Your attorney near you can prepare your dynasty trust, along with the list of your trust wealth distribution. Trust tax rules can be very complex, will vary by state, and may require the attention of an experienced legal professional.