Leaving A Legacy For Your Heirs

Posted on Tuesday, March 21, 2017

Despite its name, the term "dynasty trust" has nothing to do with aristocracy. It involves preserving wealth for your heirs.

A dynasty trust is sometimes called a legacy or perpetual trust.

Some states have a law called the "Rule Against Perpetuities" that limits the duration of dynasty trusts. This rule dates back to English common law and was enacted to keep real estate from being tied up in trusts, which can hinder commercial development. But in recent years, many states have repealed the Rule Against Perpetuities.

Basic premise: With a dynasty trust, you transfer the assets of a business, real estate or other income-producing property to a trust. Gift tax, estate tax and the generation skipping transfer tax may be avoided on transfers if they are handled properly.

Typically, a dynasty trust is set up as an "inter vivos" trust during your lifetime, but it can also be triggered by a provision in your will upon your death. Depending on the exact terms, the income accumulates or it is paid out on behalf of the trust's beneficiaries — children, grandchildren and even remote descendants. The trustee you designate has discretion to invade the trust principal if needed.

Assuming the assets remain in the dynasty trust, these assets will not be included in a beneficiary's estate when he or she dies. Thus, the funds can continue to compound over several generations without any erosion due to estate tax. Furthermore, the trust funds are managed and controlled by the trustee of your choice, so your heirs won't be able to indulge in any wild spending sprees. And because the assets aren't owned by the beneficiaries, there is protection against loss from creditors or divorce proceedings.

These benefits help preserve wealth for your personal "dynasty" for generations in the future.

Caution: This is a highly technical area of the law. State law may also have an impact, so be sure to obtain professional assistance. Contact your estate planning advisor for more information.

Posted in Tax Topics For Individuals

Disclaimer: The information contained in Dulin, Ward & DeWald’s blog is provided for general educational purposes only and should not be construed as financial or legal advice on any subject matter. Before taking any action based on this information, we strongly encourage you to consult competent legal, accounting or other professional advice about your specific situation. Questions on blog posts may be submitted to your DWD representative.

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