Perpetual, or dynasty, trusts protect assets for future generations. These trusts are designed to last for a very long time. The strategy behind a dynasty trust is to allow the creator to pass wealth from generation to generation in a manner that minimizes estate, gift and generation skipping transfer tax liabilities. The trust is irrevocable and the creator loses control over the assets and the ability to amend the terms.
The benefits of a dynasty trust include the ability to accumulate money in the trust while having those assets excluded from the creator’s taxable estate and potentially excluding them from the beneficiaries’ taxable estate as well. This can be a robust asset protection strategy.
How to Set Up a Dynasty Trust
The grantor creates an irrevocable trust for the benefit of one or more beneficiaries such as children or grandchildren. The designated trustee is empowered to distribute income and/or principal for the beneficiaries’ support, education, maintenance or health. Some dynasty trusts are designed to allow multiple generations to benefit simultaneously. Others distribute only to the oldest generation and upon their deaths to the next generation.
Here are few items to consider regarding dynasty trusts:
- Dynasty trusts shield assets from creditors.
- Dynasty trusts help to minimize estate tax liability.
- There are no distribution requirements.
- They can provide for your direct descendants for many, many generations.
- They may be funded with liquid assets, investments, stocks, securities or real property.
- Successor trustees should be named due to the longevity of the trust. A mechanism for determining the next trustee should be included in the trust language. It is common practice to choose a corporate trustee.
- Assets placed in a dynasty trust are not subject to estate or transfer tax.
- Assets in a dynasty trust cannot be accessed by a daughter-in-law or son-in-law pursuant to equitable division in a divorce.
- A dynasty trust can be funded with all or part of the creator’s estate. Some grantors only want a portion of the assets reserved for future generations in this manner.
- The Rule Against Perpetuities may require the trust to terminate 21 years after the death of the last known beneficiary at the time of its creation.
- A charity can also be a beneficiary of a dynasty trust.
If your legacy goals involve leaving wealth to many future generations, a dynasty trust may help you accomplish this. To learn more about how to set one up and what assets to use to fund it, contact the experienced attorneys at Stouffer Legal in the Greater Baltimore area. You can schedule an appointment by calling us at (443) 470-3599 or emailing us at office@stoufferlegal.com.
