What is a Dynasty Trust?
What is a Dynasty Trust?
A dynasty trust in easily digestible terms is basically a long-term trust which is established to avoid transfer taxes as wealth is passed from generation to generation. In this post, we’ll be going over the rules of a dynasty trust, beneficiaries of a dynasty trust, how taxes work with a dynasty trust, and if dynasty trusts are a good idea.
Rules of a Dynasty Trust
“What are the rules of a dynasty trust”, you may be asking yourself. We’re glad you asked! The rules of a dynasty trust depend on the state and some states had rules against “perpetuities”. This was in large part due to preventing dynasty trusts from seemingly existing forever.
There are some states which allow dynasty trusts to last for many generations. A dynasty trust, is in essence, a type of irrevocable trust. Grantors determine the rules surrounding the trust in terms of money management and distribution. Once the trust is funded, the grantor and beneficiaries will not have any control over the trust’s assets and will not be permitted to amend any of the trust’s terms.
Beneficiaries of a Dynasty trust
Children, grandchildren, and great-grandchildren are typically the beneficiaries of a dynasty trust. Operations of the trust are controlled by the trustee, whom is appointed by the grantor. Trustees are most commonly banks or financial institutions.
Taxes & Dynasty Trusts
Gift, estate, and GSTT taxes can all be applied to dynasty trusts when a transfer is made if the assets exceed federal exemptions. Income taxes may apply if the trust produces income. For this reason, the most commonly transferred assets to dynasty trusts are non-dividend paying stocks and tax-free municipal bonds.
Is a Dynasty Trust a Good Idea?
There are positives and negatives to a dynasty trust, but it ultimately depends on your goals with the overall concept of legacy wealth building. For most wealthier individuals, it can certainly be a good idea.
What are Some Disadvantages of a Dynasty Trust?
Individuals lose control of the assets within the dynasty trust, due to its irrevocable status. Also, one cannot amend the terms of the trust once everything is completed.
Who is Responsible for Taxes On a Dynasty Trust?
The grantor is the person deemed responsible for taxes on a dynasty trust. Beneficiaries of the trust pay taxes on any income produced. Generation-skipping taxes are deferred until the trust is terminated, from there, the final beneficiaries will receive the remaining assets.
Contact Lorenzo Law for Assistance With Your Dynasty Trust & Estate Planning Matters
If you’re searching for assistance with your dynasty trust and estate planning matters, look no further. Lorenzo Law is here to help you manage your estate and apply the best principles and practices to ensure wealth preservation and legacy is had every step of the way. Please contact us using the link below and we’ll be sure to respond to your inquiry as soon as possible. We look forward to hearing from you soon.
