A dynasty trust is a long-term trust created to pass wealth from generation to generation.
A dynasty trust can hold assets for generations.
Some states allow dynasty trusts to last for 1,000 years up to “forever.”
As long as assets remain in the dynasty trust, a dynasty trust can avoid taxes like:
Normally, trusts only last a certain number of years after a person passes away.
The average time a trust could last was 21 years after the last beneficiary’s death.
Under these laws, a trust could only last for roughly 100 years.
Wealthy families want to be able to pass investments down for many generations.
This is why the dynasty trust was created.
It allows families to pass down investments for hundreds of years.
There needs to be a trustee who can manage the dynasty trust for numerous generations.
A trustee for these is usually a company, like a bank or a financial institution.
The named beneficiaries of the dynasty trust are usually the trustor’s children.
(A trustor is the person whose assets are in the trust.)
Once the last-named beneficiary passes, the dynasty trust “transfers.”
The next beneficiaries in line will start receiving from the dynasty trust.
These are the grandchildren and great-grandchildren of the trustor.
A dynasty trust is an irrevocable trust.
Grantors can make the rules for the dynasty trust as strict as they like.
They determine the rules for how money gets managed and distributed to beneficiaries.
But after the grantor places money into the dynasty trust, they lose control over it.
They cannot change the assets or the rules for the trust.
And the future generations cannot make any changes either.
Assets in a dynasty trust only get taxed when they are put into the trust.
The assets will be subject to gift, estate, and generation-skipping taxes.
But the assets will not be taxed while being passed done the generations.
But they will only get taxed if the assets exceed federal tax exemptions.
The federal tax exemption for 2021 is $11.7 million.
So, dynasty trust taxation kicks in if the trustor puts more than $11.7M into the trust.
But the beneficiaries will not get hit with dynasty trust taxation.
And the beneficiaries will not get taxed based on the assets in the dynasty trust either.
This is because they have zero control over the assets in the trust.
So the assets do not count towards their taxable estates.
But let’s say that the beneficiaries receive income from the dynasty trust.
The income will still get taxed at their individual income tax brackets.
If you want to create dynasty trust for your family, fill out the form below.
The biggest issue we see with dynasty trusts is how they get set up.
Improperly set up dynasty trusts can cause beneficiaries to not get their inheritance.
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