What is a dynasty trust and how does it work?

A dynasty trust is a type of irrevocable trust that is set up to provide financial support to a family’s future generations for an extended period. The purpose of a dynasty trust is to allow for the transfer of wealth to future generations while minimizing the impact of estate and gift taxes.

The trust is created by an individual who is referred to as the grantor, who transfers assets into the trust. The grantor also establishes the terms of the trust, including the beneficiaries, the distribution rules, and the investment strategy.

Once the trust is established, it becomes a separate legal entity and is managed by a trustee who is responsible for managing the trust’s assets and distributing income and principal to the beneficiaries according to the terms of the trust.

One of the key benefits of a dynasty trust is that it can be structured to last for several generations, potentially forever, depending on the state’s laws governing the trust. As a result, the trust’s assets can continue to grow and provide financial support to the grantor’s descendants, while also avoiding estate and gift taxes that would otherwise be incurred with each transfer of wealth.

In addition, the trust’s assets are protected from the creditors of the beneficiaries, providing an additional layer of asset protection.

Overall, a dynasty trust can be a powerful estate planning tool for individuals who wish to provide for their future generations while minimizing estate and gift taxes and protecting the family’s assets. It is important to work with an experienced estate planning attorney to ensure that the trust is structured appropriately and in compliance with applicable laws.