Dynasty Trusts Avoid Gift and Estate Taxes

Settlors can set up dynasty trusts to perpetuate long-term family wealth and pay less in taxes. Bloomberg.com lists several benefits of dynasty trusts.

• Clients can put more tax-free money into the trust now that the government raised the gift- and estate-tax exemptions.
• Delaware, New Jersey, and Pennsylvania abolished the rule against perpetuities for trusts, so trusts set up in these states do not expire, which allows for long-term family wealth.
• Delaware in particular has stronger protections from creditors and civil litigation.
• There is higher growth potential when settlors place assets in a dynasty trust as opposed to passing assets not placed in a trust and subject to taxes.
• Some clients can increase their gift to the trust and use the initial contribution to take out a loan.
• Families may be able to sell a portion of a closely held business to the trust at a discount.
• The trusts are irrevocable, but if individuals do not want to give up access completely, they can name themselves as beneficiaries and have access to the money in certain circumstances.

See Elizabeth Ody, Dynasty Trusts Let U.S. Wealthy Duck Estate, Gift Taxes Forever, Bloomberg, July 28, 2011.

Special thanks to Jim Hillhouse (WealthCounsel) for bringing this article to my attention.