Dynasty Trusts: Leaving a Perpetual Financial Legacy

MIAMI/CORAL GABLES, FL – Dynasty isn’t just a television show from the 80s. It’s a legacy and estate planning mechanism generally used by wealthy families to protect multi-generational assets. Known as Dynasty Trusts, these vehicles all in-perpetuity protection of assets long after the benefactor (and even the beneficiary) of those assets has passed on.

What Is A Dynasty Trust?

Most trusts are temporary and cannot, in fact, go on forever. This is the result of a law in most states called the “Rule Against Perpetuities,” which ensures most trusts cut off typically 21 years after the death of the last originally intended beneficiary. At the end of this time period, without a dynasty trust, the estate planning will become undone and assets distributed.

Using a perpetual or irrevocable Dynasty Trust solves this potential issue and can, hypothetically, last forever. The Rockefellers are one of the best-known examples of a successful dynasty trust, which has lasted more than 80 years and four generations.

Dynasty Trusts can be set up in a variety of ways, allowing the beneficiary limited or complete control over the assets in the trust. In the former scenario a benefactor may make the beneficiary the sole trustee—thus allowing the beneficiary to act as they please. The trust may also be set up with further restrictions (so-called golden handcuffs), outside advisors or professional trustees who administer the funds in accordance with law and the trust’s structure. In short, structures can vary as it relates to beneficiaries, and as it relates to the control maintained by the benefactor/grantor himself or herself while they are still alive.

Why Use A Dynasty Trust?

There are a variety of benefits for long-held trusts, but primary among them is creating a protective environment that extends beyond the trust’s creator.

Creditors

These protective measures may include a shield from creditors that seek to collect against the trust’s beneficiaries. As with a regular trust, the trust itself, and not the beneficiaries, own the assets. As such, they are protected for the length of the trust.

Profligacy

Dynasty Trusts can also be used to ensure children, grandchildren and so on will never simply lay about waiting for their trust to pay out. Nor will there be an immediate amassing of wealth to a new generation that does not have the pecuniary fortitude to withhold mass spending.

Family Values

This has become more de la mode recently, as wealthy families think not just of passing on a legacy of wealth, but a legacy of giving and good citizenship. A Dynasty Trust may include certain clauses and other inducements to ensure family members behave in a certain way or become productive. In essence, it helps prevent the malady known as Trust Fund Kid Syndrome.

Taxes

Assets within a trust are protected and exempt from taxes on the estate of family members. In this way death or estate taxes may be permanently circumvented. At the same time, non-income producing assets (e.g. life insurance and non-dividend producing equities) within the trust can be managed and grow tax-free.

 It should be clear that the benefits of a well-designed Dynasty Trust prevent many of the issues that could occur with a temporary trust.

Other Considerations

As the benefactor to an irrevocable trust you should be aware of the tax implications. Funds given to the trust may become subject to the “gift tax” but this can be avoided with the use of the lifetime gift tax exemption—this is $5.45 million for a single donor or $10.9 million for a married donor as of 2016. The generation-skipping tax or GST can also be avoided in a similar way.

There are several other estate planning considerations that should be discussed with your advisor or estate attorney as many laws vary from state to state.

It’s important to note that several states have done away with the onerous Rule of Perpetuity (e.g. Florida and Delaware) and now also offer enticing tax-breaks and protections for those using Dynasty Trust structures.

How to Set Up a Dynasty Trust

Dynasty Trusts, as you might expect, are complex to set up, and should be taken in consideration of larger legacy giving and financial planning goals. It is highly recommended to work with a knowledgeable estate-planning attorney and financial advisor with estate planning experience in your state.

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At Genesis Wealth Managements, Inc. we have extensive experience with multi-generational wealth management, investment management and estate planning. We welcome the opportunity to speak with you. For more information, please visit us at: http://www.genesiswealthmanagement.com/  

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Please Contact Me Directly At:

• Mario Yngerto
• (786) 393-6960
• myngerto@genesiswealth.org

Genesis Wealth Management, Inc. is a fee-only firm led by Mario Yngerto serving the Greater Miami, Coral Gables, Ft. Lauderdale and West Palm Beach area. Mario is a NAPFA Advisor and holds the CPWA®, CFP®, and ChFC designations. We provide Financial Planning and Investment Planning services to our clients utilizing the proven academic research behind Dimensional Fund Advisors. We adhere to the fiduciary standard of acting in the “best interest” of our clients and are only compensated by the fees paid for our investment advice—keeping us free of conflicts and accountable to our clients.