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Dynasty Trusts
By Suzanne M. Rehmani, Esq.
Many families want to use their wealth to provide not only for their children, but for future generations as well. One of the most powerful tools available to help them do that is the Dynasty Trust. Properly structured, a Dynasty Trust can ensure your assets will not be included in you or your descendants’ estates, so they can pass tax-free from one generation to another. A Dynasty Trust is designed to hold assets in trust without direct ownership being transferred to any beneficiary. Instead, successive generations would receive the income those assets generate, or the income is added back into the principal of the trust, allowing for future growth. For transfer tax purposes, the trust's assets are valued at the amount they were worth when the trust was created so as long as the assets stay in the trust. Any appreciation is exempt from estate taxes. Besides keeping future asset appreciation undiluted by transfer taxes, there is another advantage to creating a trust today, during your lifetime, as opposed to through your will. The protections and exemptions that exist now may change—there is no guarantee the laws and exemptions that exist currently will be the same by the time the trust is created through your will. An additional benefit to the Dynasty Trust is that since the trust's assets do not belong to any of the beneficiaries, the assets cannot be subject to claims of creditors or ex-spouses.
There are no tax savings when you create a dynasty trust. Dynasty trusts are often funded using your Unified Credit (currently $2.0 million per individual, $4 million per couple). In 1986, Congress (recognizing Uncle Sam was losing billions in estate taxes) attempted to thwart these transfers by creating the "generation-skipping transfer tax" (GSTT). However, Congress did include a significant exemption in the law. Every person has a GSTT exemption of $1 million ($2 million if married). That means each person can transfer up to $1 million inside a dynasty trust, without any GSTT. Consulting with an experienced estate planning attorney is a must, but the end result is that you may be able to reduce or obviate the need to pay estate taxes directly from the assets of your estate if you plan properly.
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Suzanne M. Rehmani is an attorney in the Business and Estate Planning/Probate Department of the law firm of Kring & Chung, LLP. For more information or with questions regarding real estate law, please contact Ms. Rehmani at (949) 261-7700 or via email at srehmani@kringandchung.com
** The information contained herein is for informational purposes
only and should not be relied upon in reaching a conclusion
in a particular area. The legal principles discussed herein
were accurate at the time this article was authored but are
subject to change with time. Applicability of these same legal
principles may differ substantially in individual situations.
Please consult an attorney before making a decision in a particular
area using only the information provided in this article.
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