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What is a dynasty trust?

On Behalf of | Jul 2, 2020 | Estate Planning |

A dynasty trust is a way of keeping money in the family and out of the tax office’s grasp for generations to come.

How many generations can a dynasty trust last?

New Jersey does not place a limit on how long a dynasty trust can last. It can continue forever if you wish. However, you might choose to limit the number of years or generations it will last.

What taxes will I pay on money in a dynasty trust?

Assets you place in a dynasty trust belong to the trust, not you. You remove them from your estate to avoid them incurring tax when you pass them on. Future generations will not pay transfer tax either when they pass them on to their descendants.

Will my family pay income tax on assets in a dynasty trust?

Your heirs would need to pay income tax on any money generated by a dynasty trust. However, you can avoid this by only transferring assets into the trust that do not generate income. Examples include tax-free municipal bonds and stocks that do not pay dividends.

How is money distributed from the trust?

When you create the trust, you decide how the trustees will distribute money from it. A clear set of rules allows future trustees to carry out their duties in the manner you wish.

How much can you put into a dynasty trust?

Currently, in 2020, the maximum amount you can put into a dynasty trust is just over $11 million. This may change.

What are the disadvantages of a dynasty trust?

The main disadvantage is their inflexibility. A dynasty trust is an irrevocable trust. Once made, you cannot change your mind. Future beneficiaries cannot make changes either.

Estate planning laws are complex. Seek legal advice to understand how you can use them to benefit you and your family for generations to come.