It is tempting. The possibility of leaving your mark for generations to come has a certain appeal. Estate planning strategies like dynasty trusts can let you do just that. However, do you need a dynasty trust? What are the advantages and disadvantages of establishing such a trust? It’s important to weigh the consequences before creating and funding any trust.
Dynasty Trusts in More Detail
A trust consists of the person who established and funded the trust (the settlor), the trustee, the trust assets, and the beneficiaries. Trusts that can be easily changed are revocable. However, it may be difficult or impossible to alter the terms of an irrevocable trust. The settlor no longer controls the assets used to fund the trust.
A dynasty trust is irrevocable. The primary characteristic of a dynasty trust is that it lasts for a long period of time. The intention is to pass a family’s wealth from generation to generation. In fact, the beneficiaries of the trust are typically the settlor’s children. Based on the terms of the trust, the settlor’s grandchildren or great grandchildren become beneficiaries once the children have all passed away.
Reasons for Establishing a Dynasty Trust
Some specific advantages to this type of trust include:
- Relief from gift, estate, and generation-skipping taxes.
- Assets transferred to the trust are no longer part of the settlor’s taxable estate.
- Assets are protected from most creditors and judgments.
- Protecting inheritance for the future.
Dynasty trusts are not for everyone, however.
Reasons Not to Establish a Dynasty Trust
After several generations, the number of beneficiaries may have outgrown the trust. What sounded like an adequate amount to a settlor with three children may become inadequate as children marry and have children . . . and grandchildren . . . and great grandchildren and so on.
Tax and estate planning laws could change over time. A trust may offer great benefits for the next one or two generations only.
Consider All Your Options.
Establishing a trust can be tricky. It’s best to consult with an attorney to make sure your dynasty trust does not hurt beneficiaries with unintended consequences.
At Virtus Law, we know that family issues can make it difficult to talk about estate planning. To schedule an appointment with one of our estate planning attorneys, contact us at 612.888.1000 or send an email to info@virtuslaw.com. Our main office is in Minneapolis, with other offices located in Maplewood, Cambridge, Edina, Mendota Heights, and Red Wing