Why Create a Dynasty Trust and How to Maximize Your Contributions

Most peoplDynasty Truste with substantial assets seek to protect them and manage their growth. A dynasty trust is a wealth management vehicle that will allow following generations to benefit from your forethought. Dynasty trust assets are distributed to beneficiaries, but dynasty trusts are designed to strongly encourage trustees to maintain the maximum amount possible within the trust. The allocated funds can continue to grow and benefit your family for years to come.

How Can a Dynasty Trust Safeguard You?

A dynasty trust differs from other trusts. They are designed so that more assets remain in the trust and are not impacted by changing personal circumstances.

Trust vs. Dynasty Trust: Most trusts pay out to beneficiaries at agreed upon intervals with the balance paid during their lifetime. A dynasty trust is drafted to allow beneficiaries limited access, but will not give them the trust property.

Properly managed and designed to meet the Rule Against Perpetuities, your dynasty trust can continue to grow until 21 years after the death of all trust beneficiaries present at the time of its creation. The remaining balance will then be distributed to remaining beneficiaries.

Some states have abolished the Rule Against Perpetuities (Alaska, Delaware, Maryland, South Dakota, Idaho and Wisconsin), this means the trust could go on indefinitely. Other states will allow you to opt out of the rule while a good portion has lengthened the designated time so the trust operates as if the rule were abolished. You may create a trust under another state’s law and not remain restricted by your home-state’s rule. The Bar Association provides a summary of the state rules.

Here are a few ways a Dynasty Trust protects your beneficiaries:

  • Dynasty Trust protection: Since beneficiaries cannot receive the entirety of the trust property, funds are kept safe from creditors, estate taxes, and divorcing spouses.
  • Avoid unnecessary payment of estate taxes: The following generation is not impacted by the transfer of money. Proper estate planning accounts for the generations to come. The transfer of assets should not come as a burden to recipients. Clients want their wealth to go to their intended recipients rather than estate taxes.
  • A well-designed dynasty trust can assist future generations and be safeguarded against changing circumstances. The remaining balance need never be disbursed if designed in a state where the Rule Against Perpetuities does not apply.

Maximizing Contributions

Changes have occurred to benefit families in maximizing contributions to a dynasty trust allowing for the protection and growth of assets. Under the Tax Reform Act of 1986, individuals could put $1 million into a trust for their grandchildren without paying out the Generation-Skipping Transfer (GST) tax. The Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 raised the GST exemption amount to $5 million per person. A married couple can set aside $10 million dollars in their dynasty trust without being subject to federal estate taxes. A fast growing small company stock (private or public) would be a perfect asset to gift to a Dynasty Trust for future generations.

How much can your contribution grow when left intact? At a 6% rate of return $10 million dollars would grow to $30 million in 20 years. In 30 years, it would be worth over $50 million at the same return.

To secure and grow your financial assets for generations to come, call The Windsor Group, Ltd. to partner with a Dynasty Trust Consultant. Schedule your free consultation today at 800-678-1078.