Dynasty Trust | Legacy Trust

What is a Dynasty Trust?

What is a dynasty trust?  A dynasty trust is a special kind of trust (Irrevocable trust: Irrevocable Life Insurance Trust (ILIT)) that allows you to pass wealth to your descendants. One can consider it as a “perpetual trust” but many states have now limited the time frame.  In California its around 90 years. Also, because it’s a generational-skipping trust, it avoids some repetitive taxation. Hess-Verdon recommends speaking to an estate planning attorney to review tax changes applicable to a dynasty trust.

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Legacy Trust: What is a Legacy Trust?

What is a legacy trust?  A legacy trust is synonymous to a Dynasty Trust. Its main use is for the following, but a Legacy Trust i.e., a Dynasty Trust once again are used interchangeably:

  1. Through annual contribution’s, you can create a tax-free estate
  2. Reduce the family’s estate tax bill
  3. Creates the ability to make gifts to children and great grandchildren
  4. Used in many instances as asset protection
  5. Avoids GSTT (Generation-Skipping Transfer tax)

It is highly advisable to speak to an “Advanced Estate Planning Attorney” because the depth of knowledge of irrevocable Trusts.

Dynasty Trust  Legacy Trust

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Legacy Trust vs. Dynasty Trust

A legacy trust vs. a dynasty trust means the same thing. It’s an irrevocable trust that allows wealthy families to keep their money in the family for many generations skipping transfer taxes, such as gift tax, estate tax or generation-skipping transfer tax (GSTT) for as long as assets remain in the trust.

What are some Dynasty trust | Legacy Trust pros and cons?

Dynasty Trust Pros and Cons:

  • Pros
  1. Prone to trust disputes.
  1. Why?  It allows the successor-trustee to have more autonomy on how to manage the trust.  
  2. The trustee can charge for trustee fees
  3. Give a wide latitude of discretion for the successor-trustee in a way that beneficiaries believe in unfair.
  • Cons:
  1. Drafting a dynasty trust is very important.  Failure to do so could result in the adverse tax treatment of trust proceeds.
  2. States are now limiting the life of the trust.
  3. The trust must be irrevocable.  Once assets are placed in a dynasty trust, the grantor does not have the right to revoke or amend the trust.

How to set up a Dynasty | Legacy Trust?

  1. Consult with an attorney that has experience setting up advanced planning tools like Dynasty Trusts.
  2. Name your Trustees and Beneficiaries
  3. Decide which assets to include
  4. Determine how funds will be distributed
  5. Fund your trust

Hess-Verdon & Associates, A Professional Law Corp. is a full-service law firm, established in 1990. The firms founding principles and its dedication to a proven philosophy of client-centered service have remained unchanged.

What is an ILIT?

An ILIT is an irrevocable trust that owns life insurance.  The grantor funds the insurance through annual contributions.  The difference between a dynasty trust vs any other ILIT is that a dynasty trust uses the grantor’s generation-skipping transfer tax (GSTT) exemption to continue the trust for generations. The generation-skipping transfer tax (GSTT) is a flat tax imposed on all transfers that skip a generation.

What to know about Legacy | Dynasty Trusts

Affluent individuals who desire to safeguard their estate wealth and also create a lasting legacy for loved ones have many strategic and tactical estate and tax planning decisions to make. While considering a dynasty trust, consider how gift taxes, estate taxes, and generation-skipping transfer taxes can dramatically influence the amount of inheritance left to your children, grandchildren, and great-grandchildren.

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