The dynasty trust carries on generation after generation, providing assets and avoiding federal transfer taxes for as long as the assets remain in trust. In addition, the assets in the dynasty trust have asset protection.
“Asset protection” means that trust assets can’t be taken by the creditors, divorcing spouses, disgruntled business partners, bankruptcy court, medical bill creditors, or any lawsuit creditors of any of the beneficiaries….forever…so long as the assets remain in trust.
Federal Transfer Taxes Eliminated
The financial savings of avoiding the federal estate tax and generation skipping taxes is tremendous; this is how wealthy families maintain and build their wealth. Instead of the assets being sliced in half by taxation with each generation, they grow and grow and grow. Compounding.
Asset Protection Granted
Assets in the dynasty trust are only available for the trust beneficiaries, not their creditors. Likely, assets can be used for beneficiaries’ health, education, maintenance, and support; although, on occasion, different distribution terms are included. The trust itself will provide specific direction. The trust will, specifically, state that the assets cannot be assigned to creditors.
Although it has been commonplace for beneficiaries to be named as the trustee of their own trust share, this is short-sighted. If a beneficiary is the sole trustee of his or her own trust share, the court can order the trustee/beneficiary to release the assets. Instead, a co-trustee should be named to serve with the beneficiary/trustee, if the beneficiary is to serve at all.
Funded with Life Insurance
Dynasty trusts are often funded with life insurance. Consult with a qualified estate planning attorney to determine whether a dynasty trust fits into your customized estate plan.
Duffy Law Office is a member of the American Academy of Estate Planning Attorneys.