Dynasty Trusts

Dynasty Trusts

When some of America’s wealthiest families plan for future generation heirs, they increasingly turn to “dynasty trusts,” which essentially allow families to avoid estate taxes for generations. The leading dynasty trust states offer privacy for trusts and protection of assets from creditors. The amount of money now administered surpasses $100 billion.

Historically, states limited the duration of trusts to the lifetime of a living heir, plus 21 years. Because federal estate taxes are imposed at death, states that have not updated their law likely cause estates intended to last for generations to be faced with transfer taxes every generation, cannibalizing the value of the original estate. Dynasty trusts have the purpose of potentially avoiding generational transfer taxes in perpetuity or the distant future.

Another important benefit lies in preserving family values. Below are examples of trust clauses promoting generational fiscal responsibility:

Incentive clauses

  • Distribution audits to determine suitability of future distributions
  • Providing a set dollar amount with built-in protections for abuse
  • Income supplements for socially desirable careers like teaching and the arts
  • Regular payments to encourage stay-at-home parenting or caring for an aging family member
  • Education costs with incentives for completion and graduate degrees
  • Payments for academic excellence
  • Medical costs
  • Encouraging beneficiaries with young children to continue their marriages
  • Divorce protection (e.g. protection from an heir’s former spouse)
  • Discouraging beneficiary suits against the trust
  • Special provisions in the event of drug abuse or mental illness
  • Loans for desirable business purposes
  • Procedures for regular family meetings concerning topics such as charitable giving, family investments and estate planning.

Also, clauses can be added to promote social responsibility:

  • Mission statement for a grantor to convey his or her desires, goals and values.
  • Mandated charitable donations, if defined trust values are not met.
  • Summer jobs in family affairs for schoolers.

Liberty Street Advisory Group refers to the separate entities, Liberty Street Law, Liberty Street Capital and Trust & Estate Stewards. None of these entities or persons furnish actuarial, accounting or comprehensive tax advice. Liberty Street Law is a law firm, and does not provide investment management, or any financially-related services. Liberty Street Capital, is a limited liability company registered as an investment advisor in Georgia and other locations. Trust & Estate Stewards is a limited liability company. Past results are not a guarantee of future performance.