If you want your family fortune to trickle down to future generations, you should consider having more than a will when making your estate plans. A trust can help do the job for you. By design, trusts are meant to last forever, making them ideal when passing down the family wealth.
What type of trust is best to preserve family wealth?
One option is a dynasty trust. This legal tool is irrevocable, meaning that it cannot be easily changed or broken. When you set it up as the grantor, you get to specify its terms and set the rules of the trust, which will remain in place as long as the trust exists. The beneficiaries cannot change the terms of this trust in the future, either.
In addition, a dynasty trust will also protect your family wealth from third parties such as creditors when the beneficiaries default on debt. Since the assets belong to the trust, creditors generally cannot repossess them to recoup an individual’s debt.
The main benefit of a dynasty trust is the tax advantages it offers. The tax law passed in 2017 revised the exemption limit upwards, which currently stands at $12.06 million. Therefore, you can likely place up to the maximum amount in a dynasty trust without facing gift taxes, estate taxes or generation-skipping transfer tax.
Creating a dynasty trust can be challenging
Dynasty trusts are complex in nature and must be prepared by someone well-versed in how trusts, investments and taxes work. Certain legal mistakes when creating the trust may invalidate or void it. In addition, federal tax laws are dynamic and constantly changing, which could derail your plans.