Contact Us
Firm Overview
Why Legend Is Different
Client Types
Professional Biographies
Frequently & Rarely Asked Questions
Risk Spectrum
Investment Strategies
Second Opinion
Global Investment Pulse
Event Calendar
Press Center
Legend News
Clients Only
Career Opportunities
Newsletter Sign-up
Site Search
Site Map
Tell A Friend About This Website
Financial Briefs


Phone: (412) 635-9210
  (888) 236-5960
Connect With Legend:
Subscribe to me on YouTube

Dynasty Trusts: The Gift That Just Keeps On Giving

Would you like your assets to last forever? Of course, there are no guarantees, but a "dynasty trust" could help you preserve wealth for your heirs indefinitely. As the name implies, this type of trust is designed to span several generations, barring drastic changes in applicable laws or your family's financial circumstances.

Under a common law principle known as the "rule against perpetuities," trusts normally are required to have a beginning, middle, and an end. This rule was adopted in many states, establishing an expiration date for trusts of 21 years after the death of a potential beneficiary who was alive at the time of the trust's creation. California and other states have adopted a variation of that rule with a limit of about 90 years. Delaware is among the few states that have repealed the rule completely and actively encourage people to set up dynasty trusts in those states.

With a dynasty trust, you transfer selected assets—perhaps stocks, bonds, real estate, or a combination of those—to a trust managed by an independent trustee. The trust can be created as an "inter vivos" transfer during your lifetime or a testamentary transfer through your will. Once established, the trust is irrevocable—you give up control over the assets and the right to change beneficiaries.

The trustee invests the trust assets. Depending on the terms of the trust, income may continue to accumulate within the trust or it could be paid out to beneficiaries, usually your descendants. You might name your adult children as the initial beneficiaries, to be followed by your grandchildren and great-grandchildren. The trustee also may have discretion to invade the trust principal for the health, education, support, and maintenance of beneficiaries or for other reasons.

By letting you designate the ultimate beneficiaries of the trust at the outset, this arrangement gives you some control over where the assets end up. In addition, a dynasty trust could help you protect some kinds of assets from creditors.

But a dynasty trust also may help reduce potential estate taxes. Under current rules, everyone is entitled to a generous estate and gift tax exemption of $5.49 million in 2017, which is indexed for inflation, and likely will rise in future years. This exemption is "portable" between spouses, which enables you to use any leftover amount not used when your spouse died. Similarly, while there is a generation-skipping transfer tax (GSTT) that applies to most transfers that skip a generation, including those made to a trust, that same exemption amount applies to the GSTT.

When you transfer assets to a dynasty trust, the transfer is potentially subject to federal gift tax—if its value exceeds $5.49 million. But future appreciation of those assets won't be taxed, and that growth could benefit multiple generations of your heirs.

For example, suppose you and your spouse transfer $10 million to a dynasty trust. That gift isn't taxed because it is less than the total $10.98 million combined exemption that you and your spouse are allowed. But by the time both of you have died, suppose the assets have grown to be worth $5 million more than your combined exemption would have covered. Without a dynasty trust, your family would have to pay a 40% estate tax, or $2 million. The estate tax bill for the dynasty trust is zero.

Of course, there are other considerations, including income taxes, which the trust must pay each year on investment earnings. For this reason, dynasty trusts often are funded mainly with assets that don't produce current income—growth stock that doesn't pay dividends, for example, or tax-free municipal bonds. Life insurance policies also could be transferred to a dynasty trust.

Just keep in mind that these trusts are complex arrangements, and you'll need the help of an experienced estate planning specialist to create one that can benefit your family for generations to come.

  • A Bright Outlook For Consumer Spending
  • Six Tips To Avoid Phishing Scams
  • Seven Steps To Protect Yourself After Data Breach
  • Dynasty Trusts: The Gift That Just Keeps On Giving
  • Getting A High Tax Grade For Higher Education Credits
  • How Social Earnings Taxation Has Changed
  • Why Aren't More Millennials Moving On Up And Out?
  • Taking Socially Responsible Investing To The Next Level
  • Don't Be Caught Red-Handed By The Wash Sale Rule
  • Leading Economic Indicators Hit 10-Year High
  • Avoid These 6 Mistakes In Stretch IRA Planning
  • More Flexibility Allowed In Flex Spending Accounts
  • Individual Bonds-Ugh!
  • Set Aside The Funds One Might Need For A Rainy Day
  • Protect Against Possible Terrorist Attack
  • U.S. Leading Economic Indicators Rose Again
  • Fed Chair Strikes A More Cautious Tone, But Still Expects Moderate Growth
  • Count Off 3 Tax Breaks For Higher Education
  • Don't Be Victimized By These 10 Common Scams
  • Retirement Plan Choices For The Self-Employed
  • New Law Says Tax Debtors May Lose Their Passports
  • Compare Minor's Account To 529 Plan
  • Are You Being Socially Responsible?
  • 8 Smart Moves For College Grads
  • Seeking Financial Aid: Don't Fear The FAFSA
  • New Baby? Consider An Education Savings Plan
  • 3 Ways To Deduct Mortgage Interest
  • Understanding Deflation
  • Don't Play Up Super Bowl Outcome In Stock Decisions
  • When Should Millennials Start Retirement Saving?
  • Have Your Child Kick Into A Roth With A Reward To Boot
  • Sizing Up The Energy Boost To The Economy
  • A Stock Plunge Amid Strong Economic Data
  • 14 Top Year-End Tax Moves For Individuals In 2014
  • Drill Down For Three Key Oil And Gas Tax Breaks
  • When It Pays To ID Security Sales
  • GDP Growth Data Masks Strength Of The Recovery
  • Be On The Lookout For Crimes Involving An Elder Fraud
  • S&P 500's New All Time High Wednesday Will Probably Continue Over Upcoming Months, But Other Indexes Are Struggling
  • U.S. Stock valuations are within the top 10 valuations of all time but probably won't crash. Why?
  • Seven Steps To Digging Your Way Out Of Deep Debt
  • 5 Steps To Protect The Digital Assets You Own
  • The Long-Term Fiscal Status Of The United States
  • Margin Debt At Record Levels
  • What To Do When You're Suddenly Widowed
  • A Common Error In Powers Of Attorney
  • Should You Move To A Different State?
  • Tax Cost Of Being Your Own Landlord
  • Why Do GRATs Remain In Such High Demand?
  • Don't Wait To Harvest Your Losses
  • The Best States To Move To For Tax Purposes
  • 10 Reasons For The IRS To Flag Your Return
  • Many Women Face Special Challenges As Retirement Nears
  • Nine Reasons To Consolidate Debt
  • Straight Talk About Living Trusts
  • SEPPs From An IRA: Don't Change Horses Midstream
  • New Regulations Fill In Gaps On 3.8% Surtax
  • Do You Know Life Insurance Basics?
  • Top Income-Earners Drive U.S. Economic Growth
  • Give IRA Cash To Charity: Heads You Win, Tails You Win
  • Four Wash Sale Strategies To Help Clean Up Taxes
  • College Savings: How Much Do You Need Each Month?
  • Surprising New Research: Large Caps Top Small Caps
  • Newly Widowed Face 401(k), IRA Options
  • Retirement Saving Takes Time And Must Be A Priority
  • Divide-Conquer To Convert To Roth IRA
  • What Is Probate And What Does It Protect?
  • A Research Surprise On Bond Funds
  • After New Tax Law, Do You Still Need A Bypass Trust?
  • Start Estate Planning For Your Child Now
  • Seven Tax Ideas To Use Throughout The Year
  • A Comprehensive Way To Plan For College Savings
  • Bulletproofing Your Will Before Death
  • IRS Mercy on 60-Day IRA Rollover Error
  • Feds Warn Of Life Settlement Dangers
  • Know The Tax Rules On Charitable Gift Deductions
  • IRS Ruling Boosts IDTs as Estate Planning Technique
  • A Defined Benefit Plan Lets You Sock Away Large Amounts If You Can Overcome Some Obstacles
  • Economic Shifts Bring New Pitfalls And Prizes
  • Evaluating Great Companies
  • Inflation Versus Deflation
  • Jeremy Grantham And Lou Stanasolovich Discuss Market Valuations
  • Ramifications Of A Weakening Dollar
  • Secular Versus Cyclical Bear Markets
  • Small Business And Work Opportunity Tax Act
  • Time To Plan For Estates, Wills, & Trusts

  • ©2018 Legend Financial Advisors, Inc.®. All rights reserved.