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Dynasty Trusts

If you’ve built up a large estate over your life, you probably want to pass on those assets to multiple generations of your family. You could give your assets to your children in your will and hope they pass them on to their children, but there’s no guarantee that will happen. Further, passing assets down directly means your children and, possibly, their heirs will have to pay significant estate or gift taxes.

How can you give yourself greater control over your estate, avoid estate or gifts taxes, and ensure an inheritance for future generations of your family? By setting up a dynasty trust.

The West Valley Arizona dynasty trust attorneys at Pennington Law, PLLC, are here to help you protect your assets and establish a comprehensive estate plan. Our team has decades of legal experience, and we understand the issues of creating and managing a dynasty trust. We can explain how it functions, help you set one up, and administer it on your behalf. We’re also here to help you work through any legal complications that might arise. Call any of our Arizona offices today or visit our contact page for a free case review.

What Is a Dynasty Trust?

A dynasty trust is an irrevocable trust designed to last multiple generations to pass wealth and assets to future heirs while minimizing estate and gift taxes. By transferring assets into the trust, the grantor can remove them from their taxable estate, reducing the estate tax owed when they pass away.

Additionally, because the trust is designed to last for multiple generations, it can avoid the need for beneficiaries to pay gift taxes each time assets are transferred down the line. Also called a generation-skipping trust, a dynasty trust enables a grantor to transfer a substantial amount of money tax free to beneficiaries at least two generations their junior.

One of the critical features of a dynasty trust is that it can continue for a very long time, potentially for hundreds of years, depending on the specific provisions of the trust. This allows assets to grow and compound over time, providing an endless source of wealth for future generations.

How Does a Dynasty Trust Work?

Typically, a grantor will establish a dynasty trust and transfer assets into the trust, which a trustee manages. A dynasty trust can hold various assets, including cash, stocks, bonds, real estate, business interests, and life insurance policies.

The trust is governed by rules and provisions that dictate how the assets are managed and distributed. For example, the trust may provide regular distributions to beneficiaries or restrict distributions to particular circumstances or at certain ages. The trust typically has a trustee responsible for managing the assets and making distributions to beneficiaries. The trustee may be a professional trustee, such as a bank, trust company, or a family member or friend.

The beneficiaries of a dynasty trust can include multiple generations of family members, including children, grandchildren, and great-grandchildren. Because the trust can last for such a long time, it can provide a lasting source of wealth and financial security for future generations.

Dynasty Trusts Arizona
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Who Should Consider a Dynasty Trust?

Family Considers a Dynasty Trust

Dynasty trusts best suit individuals and families with large, complex estates. Those with smaller estates can enjoy many of the same benefits of a dynasty trust through a standard trust. Some specific reasons you might consider establishing a dynasty trust include the following:

  • Providing for Generations Beyond Your Children – A dynasty trust is designed to last multiple generations, sometimes hundreds of years. This trust allows you to provide for future generations and ensure that your family’s legacy and values are preserved. Furthermore, a dynasty trust can be structured to safeguard your assets from mismanagement and guarantee that your estate goes to chosen beneficiaries within your family’s bloodline.
  • Protecting and Controlling Assets – Assets transferred to a dynasty trust are typically protected from creditors and lawsuits. This can help safeguard the trust’s assets for the benefit of future generations. Furthermore, a dynasty trust allows a grantor to specify how the assets will be managed, invested, and distributed.
  • Minimizing Estate and Gift Taxes – By transferring assets into a dynasty trust, the grantor can remove them from their taxable estate, reducing the amount of estate tax owed when they pass away. Additionally, because the trust is designed to last for multiple generations, it can avoid the need for beneficiaries to pay gift taxes each time assets are transferred down the line.
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How to Set Up a Dynasty Trust

Dynasty trusts are subject to complex tax laws and regulations. Your best bet is to have an experienced West Valley Arizona estate planning lawyer create the trust according to your terms.

Here are a few important considerations when setting up a dynasty trust.

Goals – The first step in setting up a dynasty trust is to identify your goals for the trust. Do you want to provide ongoing financial support for your children, grandchildren, and future generations? Do you want to minimize estate taxes? Do you want to protect your assets from creditors or divorcing spouses? Understanding your goals will help you design the trust to meet your needs.

Tax Considerations – You will need to consider the tax implications of the trust, including income taxes, gift taxes, and estate taxes. A qualified estate planning attorney can help you navigate these issues and structure the trust in the most tax-efficient manner possible.

Beneficiaries – You must identify the trust beneficiaries and determine how and when the trust assets will be distributed to them. You may consider including provisions that allow for flexibility in case circumstances change.

Flexibility – It’s important to consider whether the trust is flexible enough to accommodate changes in circumstances over time. You may want to include provisions allowing amendments to the trust if necessary.

Trustee – You need to choose a trustee responsible for managing the trust assets and making distributions to the beneficiaries. Depending on your preferences, you may choose a family member or a professional trustee.

Administrative Costs – You must assess the costs of establishing and maintaining the trust, including legal and administrative fees. It’s essential to budget for these costs when designing the trust.

Funding – You must transfer assets into the trust to fund it. This can include cash, securities, real estate, and other assets.

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Is There a Difference Between a Dynasty Trust and a Legacy Trust?

No. Usually, “dynasty trust” and “legacy trust” mean the same thing.

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Dynasty Trust Pros and Cons

Dynasty trusts have both benefits and disadvantages compared to other types of trusts, and it’s essential to weigh these pros and cons before creating a trust.

The advantages of a dynasty trust include the following:

  • Avoiding Estate Taxes and Growing Assets – When set up correctly, dynasty trusts can help multiple generations of your family avoid estate taxes or gift taxes that can significantly decrease your estate. Plus, this allows for tax-free growth of assets within the trust.
  • Avoiding Probate Proceedings – When a person dies, their assets typically go through a legal process known as probate. This is where a court determines how the assets should be distributed according to the person’s will or state law. Probate can be a lengthy and expensive process, and it is often desirable to avoid it if possible. By placing assets in a dynasty trust, the grantor transfers legal ownership of the assets to the trust, which a trustee manages to benefit the beneficiaries. Because the trust owns the assets, they are not subject to probate when the grantor dies. Instead, the trust assets are distributed according to the terms of the trust agreement, which can be much faster and less expensive than going through probate.
  • Giving the Grantor More Control – A dynasty trust gives the grantor more control over how the trust assets are distributed over time compared to other trusts, particularly irrevocable ones.
  • Protecting Assets from Creditors and Divorcing Spouses of Beneficiaries – A dynasty trust safeguards assets from creditors and protects them should a beneficiary go through a divorce where their spouse tries to claim the assets in the trust.

The potential disadvantages of a dynasty trust include the following:

  • Less Flexibility for Beneficiaries – By design, dynasty trusts give little power to the grantor’s heirs. This can potentially create problems if conflicts arise among family members over how trust assets should be distributed or if a beneficiary has a problem with the chosen trustee.
  • Complex Laws and Regulations – As you can imagine, dynasty trusts are complex instruments, and you generally need a lawyer to oversee the trust. Dynasty trusts often require ongoing legal and administrative fees. They also are subject to complex tax laws and regulations that may change over time.
  • Long-Term Fiduciary Duty – Many people like to have a trusted friend or family member administer a trust, but that might be impractical with a dynasty trust. You need someone who can administer the trust for many years, which generally means having a bank or other institution serve as trustee.

Contact a West Valley Arizona Dynasty Trusts Lawyer Today

A dynasty trust can offer many benefits to Arizona families. But you shouldn’t navigate the legal and financial issues that come with it by yourself. Our estate planning attorneys have the knowledge and experience you need to help you set one up. Call Pennington Law, PLLC today or visit our contact page for a free consultation.

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