When Would a Dynasty Trust Prove Helpful?

Dynasty trust
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A dynasty trust allows for generational wealth transfer.

There are a variety of ways one can pass assets to their heirs.

These include last wills and testaments, beneficiary designations, and trusts.

Within the trust category alone, there are several subtypes.

According to a recent Kiplinger article titled “A Smart Option for Transferring Wealth Through Generations: The Dynasty Trust,” a dynasty trust may benefit many people.

A dynasty trust provides opportunities for tax efficient wealth transfer.
A dynasty trust can be an effective wealth transfer tool.

Why might this type of trust benefit you?

Nobody can take their assets with them when they die.

That is a fact.

There are no pockets in a shroud.

With the exception of assets left to charity, most inheritance assets are left to loved ones, typically family members or friends.

With a last will and testament, these are often transferred directly to heirs.

Any necessary estate taxes will be paid from the estate prior to the transfer of assets to the heirs.

The heirs will then have the assets and be able to control them as they see fit.

If your heir dies after inheriting, these assets will once again be subject to applicable estate and inheritance taxes.

If you leave assets directly to grandchildren, you will likely trigger a generation-skipping transfer tax (GSTT).

By planning for tax liability, you can provide a larger inheritance to your children and their children.

Gifting and wealth transfer plans are great options for those with a Limited Liability Company (LLC), Family Limited Partnership (FLP), large equity portfolio, or real estate.

With a dynasty trust, you can accomplish this planning without forfeiting control of your assets.

As long as the assets remain in the dynasty trust, wealth can be transferred from generation to generation without being subject to generation-skipping transfer taxes or estate taxes.

The capabilities of a dynasty trust may be subject to restrictions from state laws.

Even so, they are useful for protecting assets from potential divorces, lawsuits, and creditors.

You can create a dynasty trust with the help of an experienced estate planning attorney.

The trust can be funded with any type of assets, except for qualified retirement plan.

When the grantor dies, the trust will be subdivided automatically to create new trusts for each of the beneficiaries named.

If you had three children, the trust would divide and create three trusts when you die.

When one of your children dies, his or her trust will again subdivide to the number of beneficiaries named to provide equal shares to each of your grandchildren.

A trustee and co-trustee are essential to the proper execution and management of this trust.

Discuss your circumstances with an experienced estate planning attorney to determine if a dynasty trust is a wise choice for you and your loved ones.

Reference: Kiplinger (Oct. 2, 2021) “A Smart Option for Transferring Wealth Through Generations: The Dynasty Trust”

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