December 6, 2021

Volume XI, Number 340

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December 03, 2021

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Dynasty Trusts

An effective way to pass wealth to future generations is through the use of a Dynasty Trust. A Dynasty Trust (sometimes also referred to as a Generation-Skipping Trust), is an irrevocable trust that continues for as long as the applicable state law allows. In addition to using your federal gift tax exemption to fund a Dynasty Trust, this strategy utilizes your federal generation-skipping transfer (“GST”) tax exemption as well. The GST tax is imposed whenever a generation is skipped and property is passed to a later generation.

When properly administered, a Dynasty Trust can benefit several generations while continuing to shield the trust assets and all growth from gift, estate and GST taxes for the entire duration of the trust. In Connecticut, the maximum period of the trust is 800 years; in Florida, 360 years; and in New York, roughly the lifetimes of two generations.

The grantor will ideally fund the trust with assets that are likely to appreciate in value over time. The gifted amount is removed from the grantor’s estate, is exempt from future GST tax, and is not included in the estates of the grantor’s children and future generations. Thus, this structure allows the trust to grow entirely transfer tax-free for multiple generations. A Dynasty Trust can also be an effective tool for clients to protect the trust assets from creditors and/or divorcing spouses of the beneficiaries. Note that a Spousal Lifetime Access Trust (“SLAT”) is often also a Dynasty Trust (click here for information on SLATs). An attractive feature of a Dynasty Trust is that it would lock in today’s all-time high transfer tax exemptions for decades (or even centuries) to come.

© 1998-2021 Wiggin and Dana LLPNational Law Review, Volume XI, Number 237
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