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4 Things You Should Know About Dynasty Trusts

Last updated on: April 3, 2024

Dynasty Trusts are invaluable estate planning tools for individuals looking to preserve and grow their wealth for future generations. These intricate financial instruments offer numerous benefits, including tax advantages and asset protection. However, navigating the world of dynasty trusts can be complex, and it’s crucial to be well-informed before making any decisions. Understanding the intricacies of Dynasty Trusts can help families make informed decisions about incorporating them into their estate planning strategy to preserve and pass on wealth across generations.

When it comes to securing your family’s financial future, understanding the intricacies of Dynasty Trusts is important, and a knowledgeable New Jersey trust attorney can be your invaluable guide. At The Matus Law Group, our experienced trust attorneys understand the intricacies of Dynasty Trusts and can help you establish and maintain a trust that will protect your assets for your descendants. We can help you select the right trustees, manage assets, and minimize tax burdens. Contact us today at (732) 281-0060 for personalized guidance and legal assistance.

What is a Dynasty Trust?

A dynasty trust, sometimes known as a perpetual trust, is structured to transfer wealth across multiple generations while benefiting from certain tax breaks. By keeping assets within the trust, they can bypass the gift, estate, and generation-skipping transfer taxes that might otherwise apply.

The main distinction between a dynasty trust and a more conventional trust is its potential longevity. A dynasty trust is intended to safeguard wealth indefinitely, moving assets down the family line without a set end date.

What is an Advantage of a Dynasty Trust?

The primary advantage of a dynasty trust is its capacity to provide tax benefits. Under the Tax Cuts and Jobs Act, individuals can transfer up to $13.61 million ($27.22 million for married couples) into such a trust without incurring federal estate, gift, or generation-skipping transfer taxes, as a lifetime exemption. This allows for the preservation of wealth beyond the lifetime of the person who established it.

Additionally, because a dynasty trust holds the assets rather than the beneficiaries, it offers protection against claims from creditors or division in the event of a divorce, as the assets are not considered part of the beneficiaries’ estates.

How Does a Dynasty Trust Function?

Historically, the Rule Against Perpetuities put a cap on how long a trust could last, typically ending 21 years after the death of the last named beneficiary. However, changes in law have led many states to lengthen this period or eliminate it, paving the way for the creation of dynasty trusts that can endure for much longer periods.

Being an irrevocable trust, a dynasty trust is not subject to alterations or cancellations once established. The person creating the trust, the grantor, has the freedom to set the trust’s guidelines. After the initial funding, these guidelines cannot be modified, nor can the beneficiaries make changes, making careful planning of the trust’s terms crucial.

In setting up a dynasty trust, the grantor may opt to let a beneficiary act as their own trustee, which is a more relaxed approach to managing the trust. Commonly though, grantors choose a financial institution or bank to manage the trust. This appointed trustee then oversees the asset management and distribution according to the trust’s established rules. As beneficiaries pass away, their roles are taken on by the next generation, continuing the trust’s lifecycle.

So what else is there to Dynasty Trusts? Here we provide 4 additional things everyone considering establishing one should know: 

Dynasty Trusts Aren’t Only for Large Estates

It’s a common assumption that smaller estates (those with less than a million dollars in assets) can’t justify Dynasty Trust protection. However, a reduced Dynasty Trust protection can be provided for those who’d like to preserve portions of their estate for future generations.

Dynasty Trusts Don’t Last Forever (In Some States)

Some states don’t place limitations on trust duration, allowing the trust to continue passing from generation to generation indefinitely. Others, like Alaska, Maryland, South Dakota, Idaho, and Wisconsin, have done away with laws against perpetuities—requiring the trust to end 21 years after the death of the last known beneficiary.

The Trustee for a Dynasty Trust Should be a Corporation

Because the purpose of a Dynasty Trust is to last throughout several lifetimes, many choose to designate a corporate trustee, such as a bank or an independent trust company who will be able to serve as trustee for the entire lifetime of the trust.       

A Charity Can Be a Beneficiary of a Dynasty Trust

Many people like to gift a portion of their assets to charity upon their passing. This can also be done in a Dynasty Trust. Incorporating a charity into a Dynasty Trust is relatively simple. For example: you can have your attorney include a provision that states that with every beneficiary’s passing, 20% of the trust’s assets get donated to the charity of your choice. 

4 Things You Should Know About Dynasty Trusts Details
Dynasty Trusts for Smaller Estates Dynasty Trusts aren’t limited to large estates. Even smaller estates can utilize Dynasty Trust protection to preserve assets for future generations.
Trust Duration Varies by State The duration of Dynasty Trusts varies by state. Some states allow trusts to last indefinitely, while others have limitations, often around 21 years after the last beneficiary’s death.
Corporate Trustee Recommended Given the long-term nature of Dynasty Trusts, many opt for a corporate trustee, such as a bank or trust company, to ensure the trust’s continuity across generations.
Charities as Beneficiaries Dynasty Trusts can include charities as beneficiaries. You can specify that a percentage of trust assets goes to a chosen charity upon each beneficiary’s passing.

Disadvantages to Consider with Dynasty Trusts

  • Because Dynasty Trusts last through several lifetimes, a corporation is usually named as the trustee, which is most often accompanied by substantial administrative fees.
  • The amount of wealth decreases with each generation.
  • The longer the trust lasts, the less the beneficiaries are related to the decedent.

For many affluent families, a Dynasty Trust plays an integral part in their long-term, multi-generational planning. Establishing a Dynasty Trust allows you to have a certain amount of control over your hard-earned money even after your passing and frees your beneficiaries from overwhelming tax-related issues.

Let’s Get You Started Today!

If you have questions about establishing a Dynasty Trust, other kinds of trusts and wills, or any other New Jersey estate planning law questions or concerns, give the experienced legal team at the Matus Law Group a call. Contact us here or call (732) 281-0060 today!

Christine Matus

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Christine Matus
Christine Matus

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