What Is A Dynasty Trust And How Can It Help?

gift tax or an estate tax

As described by Investopedia, a Dynasty Trust is a trust that is long term in nature and that is designed to pass wealth through multiple generations without incurring any type of transfer taxes such as a gift tax or an estate tax. A Dynasty Trust is most notably identified by its term of enforcement. For example, in most instances, this type of trust will survive for 21 years after the passing of the last beneficiary.

Managed And Controlled By A Trustee

In theory, a Dynasty Trust can last for a century or longer. In many cases, the beneficiaries of this type of trust are typically the grantor's children, grandchildren or great-grandchildren. A Dynasty type of trust is managed and controlled by a trustee who is appointed by the grantor. As a note, this particular type of trust is considered irrevocable. In other words, once a Dynasty Trust is funded the grantor no longer has control over its assets or amending the terms of the trust.

Generation Skipping Transfer Tax

Improving tax efficiency through protecting an estate from estate taxes and gift taxes is often best achieved through taking advantage of a Dynasty designated type trust. Most importantly, the US government along with the IRS have put into place Generation Skipping Transfer Tax provisions that results in slightly over $5 million of exemption for an individual or slightly more than $10 million for a couple in terms of tax saving opportunities.

No Expiration Date And There Are Literally No Minimum Distributions

Enjoying the greatest level of tax efficiency through multiple generations of descendants can often be best secured through taking advantage of existing estate tax exemptions at both the federal and state level as well as through all that a dynasty trust has to offer. Because this type of trust has no expiration date and there are literally no minimum distributions, assets can grow unencumbered through multiple generations.

Divorce Proceedings And General Asset Protection

It is, however, important to note that each state is different and that is why working with an experienced estate planning advisory is such a good idea today. Along with varying specifics from state to state regarding trust laws and rules, there are other considerations that must be addressed such as how divorce proceedings and general asset protection are affected on a state-by-state basis.

Unimpeded By Taxation

In short, a $5 million gift and tax exemption allows wealthy individuals to place more tax-free money in a trust. Avoiding intergenerational transfer type taxes is essential to growing an estate through succeeding generations while being unimpeded by taxation. Assets that are not protected by a trust and that are taxed multiple times through future generations can greatly reduce the overall value of a family estate.

Wealthy Individuals With A Net Worth Of More Than $25 Million

While there are costs involved with setting up a Dynasty Trust; attorney's fees, estate planning fees and other related expenses are minimal in comparison to the amount of money that can be saved for an existing estate as well as for future generations. In most cases, wealthy individuals with a net worth of more than $25 million will typically find great advantage in a Dynasty Trust.

Existing Laws And Rules

A trust of this kind is also highly beneficial for families who maintain closely held businesses. Taking the time to consider the benefits and advantages of trusts is essential to providing the highest levels of financial security for heirs and future generations. Taking full advantage of existing laws and rules in this fashion is a smart and proactive way to maintain a family legacy intact for decades and even centuries.

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