Trusts have become more popular in recent years, as people increasingly realize that they can accomplish numerous different goals – including helping families of significant means safeguard their wealth and create a lasting financial legacy.
A dynasty trust is a type of trust that is specifically designed to endure for generations, ensuring your family’s prosperity and stability for years to come.
How are dynasty trusts useful?
These trusts are irrevocable, which means that they cannot be altered or revoked once they’re established by their grantors. In addition, it’s important to realize that everything held in the trust is no longer considered the grantor’s property – nor do those assets belong directly to the trust’s beneficiaries.
This means that future generations of beneficiaries also cannot amend the trust and cannot include the assets in the trust as part of their estate plans. Since the assets stay in the trust, they can be invested and continue to grow – rather than gradually being split into smaller and smaller amounts with each successive generation.
Dynasty trusts are also part of tax mitigation strategies. The federal estate tax exemption in 2023 is $12.92 million ($25.84 million for a married couple), which means that amount can be put in a dynasty trust without having to pay any estate or gift taxes. This also ultimately reduces the tax burden on the grantor’s entire estate, which preserves more of that wealth for future generations.
Finally, another benefit of a dynasty trust is that it offers superior insulation against legal claims. The fact that the assets are owned by the trust – not the beneficiaries – protects the family’s wealth in cases of divorce, business losses, lawsuits and other financial challenges in the future. That also serves to protect individual beneficiaries (sometimes from their own worst instincts or bad habits).
While dynasty trusts are particularly suited to people with significant wealth, there are many different trusts that can be used to meet diverse needs and goals. If you’re interested in learning more about trusts, know that legal help is available.