A well-designed dynasty trust can be an essential estate planning component for families wishing to pass on wealth for multiple generations. In addition, because a dynasty trust is an irrevocable trust, it also aids in protecting property such as homes and real estate and avoids the probate process.
A dynasty trust also helps families avoid other fees such as gift tax, estate tax, and generation-skipping tax. However, individuals should know that the grantor’s estate does pay applicable taxes and all assets must remain in the trust to reap the full benefits.
Suppose you feel that your family and future generations could benefit from using a dynasty trust. In that case, you must speak with a qualified lawyer with experience creating irrevocable trusts. Our law firm’s attorneys can evaluate your needs and help you create an estate plan that will protect you and your beneficiaries.
Contact us today to schedule a free initial consultation to learn more.
What is a Dynasty Trust?
A dynasty, or perpetual trust, is an estate planning tool to pass on wealth through multiple generations. However, many individuals confuse a dynasty trust with a more traditional trust. A traditional trust in Michigan may only last up to 21 years after the death of the last beneficiary of the trust passes away.
However, with a dynasty trust, there is no time limit on how long the trust can last and how family members can continue to benefit long after the grantor and original beneficiaries pass away.
The main benefit of a dynasty trust that makes it so appealing is its tax advantages to beneficiaries. For example, the federal estate tax exemption is 11.58 million dollars, allowing the grantor to place that amount in the trust to prevent future generations from paying applicable taxes. A dynasty trust is especially helpful for individuals who wish to avoid the generation-skipping transfer tax when leaving assets to grandchildren.
Some of the most common assets that are placed in a dynasty trust are growth stocks, tax-free municipal bonds, and life insurance.
Who Should Consider Creating a Dynasty Trust?
Although a dynasty trust sounds like a sound method for protecting wealth and assets for future generations, it is not suitable for everyone. Instead, individuals with a significant amount of assets to leave in their estate will benefit the most from creating a dynasty trust.
One of the most significant factors in a dynasty trust is that the trust and not the beneficiaries own the assets, thus making them exempt from estate taxes for future generations. A dynasty trust is the right choice if an individual is concerned about future generations benefiting from their assets.
For individuals considering creating any type of trust as part of their estate plan, it is always best to consult an experienced lawyer. Because a dynasty trust is an irrevocable trust, any assets placed within the trust cannot be removed, which may cause unforeseen financial issues for the grantor or beneficiaries.
As a result, anyone considering a dynasty trust should be well-informed as to the advantages and disadvantages of this type of trust.
Are There Disadvantages to Establishing a Dynasty Trust?
Even though a dynasty trust is an excellent way for trust beneficiaries to avoid many of the inheritance and gift taxes that are paid on estates, there are significant disadvantages that individuals should be aware of, which include:
- The terms of the trust cannot be changed once it has been created.
- Trustees must follow the rules stipulated in the trust guidelines, which can make many heirs unhappy because they feel that they did not receive a traditional inheritance after the grantor passes away.
- All generational-skipping taxes must be paid when the trust terminates and goes to the final beneficiaries.
- A dynasty trust can easily outlive the original trustee and beneficiaries, leading to legal issues about who has the authority to oversee the trust. However, in many cases, grantors opt to name a professional fiduciary to handle any trust issues that may arise.
To learn more about the disadvantages of a dynasty trust, you must speak with an experienced estate planning lawyer who can provide information to make an informed decision.
Our law firm has estate planning lawyers who can answer your questions and determine the type of trust that may be right for you.
Does Your Law Firm Have the Experience Necessary to Help Create a Dynasty Trust?
If you decide that a dynasty trust is suitable for your family, you will need a skilled lawyer who can assist you with creating the trust to ensure no legal issues arise at a later date. Our legal team has the experience you need to ensure that future generations can benefit from the trust and be protected against high estate and gift taxes. In addition, you can rest easy knowing that your assets will not be subject to probate and that all family financial matters will stay private.
Our law firm is passionately committed to helping individuals and families plan for the future. When you come to us with your estate planning needs, we take time to understand what you want before we make any recommendations.
Often, our clients tell us that they feel at home when they come to us for help. We pride ourselves on the service we have been able to offer clients over the years as we help them feel confident their families and other beneficiaries will be well cared for in the years to come.
If you want to create a dynasty trust or more information about the benefits, contact Estate Planning & Elder Law Services, P.C. of Northville, MI, at 888-663-7407 to schedule a free no-obligation consultation.