Dynasty Trusts

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Leesbro63
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Joined: Mon Nov 08, 2010 4:36 pm

Dynasty Trusts

Post by Leesbro63 »

I read an article recently that referenced "Dynasty Trusts". It didn't go into detail. Has anyone here done one and what are the details?
doubledoodles
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Joined: Thu Feb 28, 2019 10:21 pm

Re: Dynasty Trusts

Post by doubledoodles »

They are perpetual trusts intended to pass on assets to children and grandchildren, held and administered to reach certain goals. They are typically irrevocable and Settlor (the creator) can only access income, not principal. This loss of control creates advantages in avoiding or minimizing estate taxes.
staythecourse
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Joined: Mon Jan 03, 2011 9:40 am

Re: Dynasty Trusts

Post by staythecourse »

Read about these a few years ago. I think they just normal trusts. The difference is they are domiciled in states that have no laws against perpetuity. That means if the inheritance goes on per stirpes then they go on forever as long as you have progeny.

Think they are more a marketing tool for these states for their bank and trust departments to cash in on all the money transferred to trusts in one of the states that have laws allowing this.

Like most trust, however, my guess is the costs are excessive in most cases and really bite into long term gains.

Good luck.

p.s. If we are lucky maybe bsteiner will drop in and educated us a bit and tell us if there are many advantages of its use for the "milliionaire next door" client.
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ResearchMed
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Re: Dynasty Trusts

Post by ResearchMed »

staythecourse wrote: Fri Mar 01, 2019 9:46 pm Read about these a few years ago. I think they just normal trusts. The difference is they are domiciled in states that have no laws against perpetuity. That means if the inheritance goes on per stirpes then they go on forever as long as you have progeny.

Think they are more a marketing tool for these states for their bank and trust departments to cash in on all the money transferred to trusts in one of the states that have laws allowing this.

Like most trust, however, my guess is the costs are excessive in most cases and really bite into long term gains.

Good luck.

p.s. If we are lucky maybe bsteiner will drop in and educated us a bit and tell us if there are many advantages of its use for the "milliionaire next door" client.
I suspect it would need to be the "multi-millionaire next door", possibly at least 8 figures or high 8 figures (?).
By the time you have a couple/few children, and each of those has a couple/few children, etc... that principal is going to get quite diluted, and any income would become less and less useful... perhaps nice pin money eventually... especially if there are significant management fees being removed, also in perpetuity. :(

RM
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aspiringboglehead
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Re: Dynasty Trusts

Post by aspiringboglehead »

The notion of a "dynasty trust" isn't a formal legal concept; it's just a casual term for irrevocable trusts that maximize the benefits of the lifetime exemption amounts for the estate tax and the generation-skipping-transfer tax. Once the money is in the trust, it can generate income for future beneficiaries free of those taxes, which wouldn't be possible (above the exemption limits) if the money were passed outright from person to person. (Income taxes are still due on the income, regardless, either by the trust or by the recipients.)
123
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Re: Dynasty Trusts

Post by 123 »

Depending on the pattern of family marriage/divorces/remarriages and descendants that result the impact/value of the trust on/to the beneficiaries can be diluted very quickly, sometimes within 1 generation. It can be difficult to provide value to future generations from the grave.
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WannabeAgAlum
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Re: Dynasty Trusts

Post by WannabeAgAlum »

About "dynasty trusts":
  • Also commonly called, with varying degrees of overlap, irrevocable trust, SLATS (spousal lifetime access trusts), IDGTs, Gift Trusts, ILITs, etc.
  • Usually means assets can be held for more than one generation in trust for as long as state law allows (from lifetime plus 21 years to never, depending on state, with some states allowing many hundreds or even thousands of years before the law says trust must terminate). This state specific law is called the rule against perpetuities.
  • If drafted correctly, under current law, and depending on the value of the assets when transferred relative to the various tax exemtions available to the transferor, all assets that stay in trust can pass from generation to generation outside the estate, gift and generation skipping transfer (GST) tax system. This can save families millions and millions over a relatively short amount of time. These tax rates are currently "only" 40%.
  • If in state with no income tax, then no state income tax is possible
  • Offers more creditor protection (what percentage of marriages end in divorce?) than if assets distributed out of trust
  • More administrative costs but these usually and hopefully are dwarfed by potential tax and creditor savings

  • If you think you are not rich enough to worry about transfer taxes, keep watching the political pendulum swing.
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