A "Dynasty Trust" refers to a living trust specifically designed to provide financial strength across multiple generations while also offering protection against generation-skipping and estate taxation. This mechanism allows assets within the trust to remain invested over extended periods and continue growing in value.
High-net-worth families and individuals often view Dynasty Trusts as crucial tools for estate planning. Once established, Dynasty Trusts can exist and facilitate familial asset growth for several decades, offering sustained financial security to successive generations of beneficiaries.
The individual who establishes the dynasty trust (referred to as the grantor) gives up the capacity to make changes to the trust, which is essentially irrevocable, once they place their assets within it. Should the grantor transfer their assets' ownership to the trust, they receive relief from generation-skipping and estate taxation, given that one can't be taxed on property they no longer possess.
The incomes generated by these assets, under the stewardship of the trust and its responsible trustees, can then be shared with the trust's beneficiaries for as long as the trust exists.
These trusts offer three key benefits. First, they can protect against taxes on estates, gifts during the donor's lifetime, and other generational transfers. Understanding these potential tax liabilities is critical in understanding the benefits of a Dynasty Trust. Secondly, assets under the trust are immune to seizures by beneficiaries' creditors as these assets technically belong to the trust. Lastly, grantors can set terms and conditions for how beneficiaries receive income from the trust.
However, setting up a Dynasty Trust requires careful thought about future priorities and a willingness to permanently relinquish control over one's assets. Understanding the implications and potential costs of giving up control over wealth for future generations' benefit is critical. Hence, it is advised to speak with an estate planning attorney or financial professional about whether such a trust could serve one's family best.