The term “Dynasty Trust” refers to an irrevocable trust that lasts for multiple generations. Some people also call this a “Legacy Trust” since you are, in effect, creating a legacy to benefit your descendants for years to come. While some states will allow the trust to continue in perpetuity, most states do not. Nevada will allow a Dynasty Trust to continue for 365 years.
Assets transferred to a Dynasty Trust enjoy at least three distinct benefits.
1. No estate tax on future generations
Whether or not the assets transferred to a Dynasty Trust are taxed on the Trustor’s death, if the trust is drafted properly the assets will not be subject to federal estate tax upon the deaths of subsequent generations. The benefits of this are obvious as the assets will be allowed to grow and compound inside of the trust free of the estate tax that would otherwise be levied on the assets at each subsequent generation, taking up to 40% of the Trust assets in estate tax at each generation.
2. No generation-skipping transfer tax
If the assets transferred to the Dynasty Trust are exempt from generation-skipping tax, then the assets will continue to pass from generation to generation free of the generation-skipping transfer tax. Similar to the estate tax, this will allow the assets to compound free of the GST tax.
3. Asset protection
It is often said that the best asset protection that someone can have is a trust that someone else establishes for them. By establishing a Dynasty Trust for your children and subsequent generations, the assets held by the trust will not be subject to attack by such beneficiaries’ creditors, including potential future ex-spouses.
And Dynasty Trusts, sometimes also referred to as Modern Trusts, are not only for the ultra-wealthy. Even a $1,000,000 bequest placed into an irrevocable Dynasty Trust with a combined growth and income rate of 4 percent can grow to nearly $91,000,000 after a mere 115 years. And remember, the trust can continue for up to 365 years in Nevada.
The power and advantages of implementing a Dynasty Trust into your estate planning are significant. If you live in the southern Nevada area and would like to learn more about these trusts and how to incorporate a Dynasty Trust into your estate planning, please contact our office. I would be glad to meet with you for a free initial consultation.