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What is a dynasty trust?

Setting up a trust can be a very wise decision for people who wish to retain a little more control over the distribution or use of their assets in the event of death or incapacity. With a trust, you can set limits on payouts and direct trustees on various types of decisions, which can provide considerable peace of mind for those involved.

However, there are many different types of trust that protect different elements. For instance, if your goals for your trust extend throughout generations instead of just the immediate beneficiaries, it may be wise to consider a dynasty trust.

A dynasty trust is generally reserved for people with considerable assets to protect, including individuals with more than $5.45 million. We will discuss the reason behind that number later in the post.

By setting up a dynasty trust, the idea is to extend the payouts over many generations, including those who have not even been born yet. To do this, people often utilize institutional trustees, grant little control of payouts to beneficiaries and fund the trust with assets that generate little income.

One of the main advantages of dynasty trusts is that it shields beneficiaries from having to pay federal estate taxes. Individuals with a net worth of more than $5.45 million (and couples with a net worth of $10.9 million) will find this particularly interesting, as they are not exempt from federal estate taxes. Essentially, this allows a trust to provide for generations of beneficiaries without anyone having to pay estate taxes because the trust never ends.

Dynasty trusts are not appropriate for everyone, but they — like any type of trust — can be an essential estate planning tool for people in specific situations. If you have questions about setting up a dynasty trust or if you are a beneficiary of a dynasty trust and have questions, it can be critical that you examine your legal options with an experienced estate planning attorney.

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