Category Archives: Dynasty Trusts

What is a dynasty trust?

1. What are dynasty trusts?
Most trusts — bank accounts held by one person, a trustee, for the benefit of another person or group — come with expiration dates. A few states, including Delaware and South Dakota, permit trusts to last forever. People from across the U.S. can open dynasty trusts in these states.

2. Why are they getting popular now?
The tax overhaul of 2017 doubled — to $11.2 million for an individual and $22.4 million for a married couple — the amount that can be passed to heirs without triggering estate and gift taxes. However, these higher thresholds are only in place until 2025 giving the rich a potentially limited opportunity to pass more wealth to family members tax-free while also exerting some control over how heirs spend their inheritances.

3. Why use a trust in the first place?
Trusts protect assets from creditors and former spouses. They can enable clever financial maneuvers that maximize the estate and gift-tax exemption. And trusts give donors some control over how the money is spent. For example, a donor can limit withdrawals so money can only be used for college, to purchase a home, or other specific purposes.

4. Why choose a dynasty trust?
Under the previous estate tax limits, many wealthy Americans already had set up trusts for the benefit of their children. If you wish to make your grandchildren or great-grandchildren rich, a dynasty trust can make that easier.

5. How do they work?
They can be funded with cash, stock or other assets, and structured to pay each generation only some of the trust’s proceeds while the rest of the money grows free of estate and gift taxes. While trusts or their recipients generally need to pay taxes on income and gains, they don’t owe capital gains taxes until assets are sold. With the right planning, a trust funded up to the maximum threshold tax exemption amount could be worth far more than that.