They say that one generation builds the fortune, while the heirs get the job of squandering it.
There’s evidence to suggest the aphorism’s truth, but equally many cases where the opposite comes to pass: the family name and fortune lives on. The vagaries of life can be hard to predict, but there’s no denying that successful outcomes are the product of careful planning and preparation. If you want to build a family dynasty, you won’t leave anything to chance.
The first enemy to your goal is paradoxically a stranger, but one of long acquaintance: the tax man. If you want the lion’s share of your wealth to get into the hands of your family, you’ll need a cunning strategy to thwart this eternal, voracious pest. A particularly effective weapon is the dynasty tax. Right now is a particularly felicitous time to employ the strategy, thanks to the tax reform of 2017.
In the case of dynasty trusts, you’ll recognize the drill: the grantor opens the trust by assigning it assets. If this happens while the grantor is alive, the assets are no longer a taxable part of his or her estate. To gain this benefit, the trust structure needs to be irrevocable – there’s no going back once the assets are transferred to its structure. The grantor must name trustees to run the operation and beneficiaries to reap the rewards when the day comes to pass.
Dynasty trusts contain a provision that differentiates them from ordinary trusts, which as a rule have a relatively short lifespan. The dynasty variety can be built to last for many generations and indeed, theoretically forever. When the grantor dies, the trust’s assets are not simply disbursed to beneficiaries. Rather, it splits into smaller trusts, rather like a living cell subdividing, with each one assigned to the specified heir. In point of fact, only five states allow so-called perpetual dynasty trusts, a few more set the limit at 1,000 years, and three others allow 360 years. If you want to build a dynasty trust, the domicile must be carefully selected. We suggest not making the attempt without expert and experienced legal assistance.
For more information, please read:
Dynasty Trusts Explained | Wealth Management