Nothing lasts forever. Well, this is not true for a few legal entities such as partnerships and corporations. For trusts, a law called the Rule Against Perpetuities typically ends most trusts after just a few generations have passed. Even the most meticulous planning of a trust cannot prevent it from one day dissolving into nothing. There is a way around the Rule Against Perpetuities called a dynasty trust.
Wyoming's Dynasty trusts are not covered by the Rule Against Perpetuities because they are created to last forever. The careful planning of a dynasty trust makes it a superior financial planning tool for families that have accumulated a substantial amount of wealth.
How Does a Dynasty Trust Work?
A common rule established by law stated a trust had to expire 21 years after the death of the last beneficiary, as long as the beneficiary was living at the time the trust formed. Under the Rule Against Perpetuities, a trust could last for as long as 100 years. Some states have eliminated the Rule Against Perpetuities, which has opened the legal door for dynasty trusts.
A dynasty trust is a type of irrevocable trust, which allows grantors to establish stipulations for how the trustee manages the money held within it. This includes how much of the assets each beneficiary is to receive. However, after a dynasty trust is funded, the grantor no longer has any influence over controlling the assets. A trustee, who the grantor appoints, controls a dynasty trust.
What are the Benefits of a Dynasty Trust?
A dynasty trust is one of the most effective ways to protect the assets of a family. The three primary benefits of forming a dynasty trust include the following:
- Protection against creditor actions
- Encourages value-based estate planning
- Legal shield against taxes
Protection Against Creditor Actions
Forming a dynasty trust can protect the assets in the trust from the creditors of each of the beneficiaries designated by the trust. The protection lasts forever and it includes every type of asset that can be liquidated to pay off debt obligations.
Encourages Value-Based Estate Planning
Since a dynasty trust lasts into perpetuity, the creator of the trust can pass on values like work ethic and personal philosophies to all beneficiaries. Passing along values includes adding incentives that encourage each beneficiary to remain a productive member of society.
Legal Shield Against Taxes
When a creator designs and funds a dynasty trust correctly, the assets assigned to the trust remain exempt from estate taxes for all beneficiaries. The compounding effect of tax exemptions for assets assigned to a dynasty trust means a trust can increase in wealth at a substantially faster rate than estates that are vulnerable to taxation. A dynasty trust also defers state and local income taxes.
How Do Beneficiaries Receive Assets from a Dynasty Trust?
You can create a dynasty trust in many ways. The customization benefit is especially helpful for large family dynasty trusts that have a considerable amount of money tied up in the trust’s assets. You can create a highly restrictive dynasty trust or designate a trustee to be the only beneficiary of a trust. The control structure implemented by the creator of a dynasty trust can include elaborate plans such as developing a Family Council that allows some, most, or all family members to have input into how the trust is administered.
Learn More About Forming a Dynasty Trust
Since there are several ways to form a dynasty trust, consulting with an experienced estate attorney can help you decide which form works best for your unique financial goals. Contact Cloud Peak Law Group today to learn more about how to create a dynasty trust.
