If you own a large estate, consider the best estate plans for you and your heirs. You don’t want to burden your children with a heavy estate tax once you pass away. Estate lawyers recommend setting up trusts to protect your assets. The dynasty trust is more intriguing than traditional trusts because theoretically they can last forever. Read on to see how to use a dynasty trust to grow wealth and benefit future generations.
What is a Dynasty Trust?
A dynasty trust provides for your children and their heirs for generations to come. The assets in the trust will increase in value over time. For example, if you left five million dollars to your child in a dynasty trust, it could be worth fifteen million dollars thirty years later.
The biggest bonus in using a dynasty trust is that your heirs don’t have to pay a huge estate tax. You have to pay an estate tax just once when you transfer the assets into the trust.
Beware that some states have rules against perpetuities. These rules cut down on the timespan of dynasty funds, indicating the trust ends approximately 21 years after the death of the original beneficiary. In recent years however, certain states have disbanded the rules of perpetuities. At least half the states today allow the dynasty fund unlimited or very lengthy timespan.
Assets in the Trust
Your beneficiaries might not need to pay estate taxes, but they will pay income taxes if the trust earns any income. Therefore pick assets such as tax-free municipal bonds or growth stocks that don’t pay dividends. You could also transfer your life insurance policy to the trust and have the policy earnings pay off other taxes or debts that occurred after your death.
Disadvantages to the Trust
With a dynasty trust, you have the most control over the assets and who benefits from them. By contrast, your beneficiaries have very little control over the trust. When you die, the trust will be overseen by a trustee (usually a bank or trust company) who will follow your directions. Either the trustee or beneficiaries can distribute the money, but only according to the terms you set for the trust. Your great-grandchildren and later generations might resent that someone they never met is controlling the trust for them.
Dynasty trusts are irrevocable. Therefore you cannot make any changes to the beneficiaries or the terms of the trust once it’s been set. If your beneficiaries’ financial or family situations change, the trust might be useless to them. So choose your beneficiaries wisely and allow for future negotiations with your terms.
Let Us Help You
Our team hopes you have a better understanding of how to use a dynasty trust to grow wealth and benefit future generations. At Tanko Law, we help Montana residents with their estate planning and probates since 1995. Our website gives even more details on dynasty trusts and other trusts to protect your assets. Our attorneys will gladly answer any other questions you have and will help set up a trust for you.
For a free consultation, call us at (406) 257-3711.