A dynasty trust is a special type of irrevocable trust that can help you protect your assets and pass them down to your heirs for generations. As you may have guessed, the reason it is called a “dynasty” trust is that, unlike other types of trusts, it can be used to pass wealth down through multiple generations of a family. This can benefit wealthy families who want to preserve their wealth and pass it down to future generations. It is also helpful for individuals and families who do not only consider their children and grandchildren when making an estate plan.
If you live in Texas, you may be able to take advantage of the state’s favorable laws regarding dynasty trusts. This article will show you how a Texas dynasty trust can help you protect your assets.
The Benefits of a Dynasty Trust
The benefits of setting up a dynasty trust include the following:
Tax Benefits
Since a dynasty trust lasts for multiple generations, it is only natural to wonder if it can provide tax benefits to the grantor, the beneficiaries, and the future generations of beneficiaries. Yes, it does. It can provide tax benefits and asset protection for the grantor and the beneficiaries.
By establishing a dynasty trust to hold family assets for the benefit of future generations, you can take advantage of the federal generation-skipping transfer tax exemption and keep such assets out of the transfer tax system. For beneficiaries down the line, a dynasty trust can also be set up such that it pays no taxes on income or capital gains.
Flexible Distribution Planning
Another benefit of a dynasty trust is flexible distribution planning. The trustee has the discretion to distribute assets to beneficiaries in any manner they see fit, as long as it is under the terms of the trust agreement. This flexibility can be helpful if there are ever changes in circumstances or family dynamics that need to be considered. Distributions from a dynasty trust can be made to beneficiaries based on various factors, including need, age, health, education, and more. This flexibility allows trustees to make distributions that are in the best interests of the beneficiaries and the trust. Flexible distribution planning can also help ensure that the trust assets are used in a way that best benefits the beneficiaries and meets their changing needs over time.
Legacy Protection
Legacy protection is another significant benefit of establishing a dynasty trust. With a trust, your assets will be protected from creditors and lawsuits after your death. If your heirs are sued, the assets in the trust will not be subject to seizure. These ensure the wealth legacy of the grantor is not diluted.
Since the dynasty trust also offers help with minimizing taxes and can help maximize asset growth, it can help keep your family’s wealth intact for many years to come. So, you can rest assured that your legacy will live on even after you are gone.
Avoid Probate
When a Texas resident dies, their estate generally goes through a process called probate. Probate is the legal process of distributing a deceased person’s assets to their heirs. The court appoints an executor or administrator to oversee the probate process. They are responsible for inventorying and appraising the estate’s assets, paying debts and taxes, and distributing the remaining assets to the beneficiaries. The probate process can be lengthy and expensive, so many people choose to create a trust to avoid it.
When you create a dynasty trust, you essentially create a vehicle to avoid probate for future generations. By placing your assets in a dynasty trust, you can ensure that they will not have to go through probate when you die. This can be a massive benefit for your heirs, as it will save them both time and money.
Privacy
If you are looking for privacy in your estate planning, a dynasty trust may be the answer. Unlike a will that goes through probate, a trust does not.
After probate, the outcome of the probate becomes a public record, but since a dynasty trust does not go through probate, it remains private. This means that your beneficiaries’ names and the contents of the trust are not available for public consumption. This can be important if you want to keep your family’s financial affairs private. Essentially, that means your heirs can inherit without the world knowing about it.
What are Some Things to Consider When Setting Up a Dynasty Trust?
Before setting up a dynasty trust, you should consider whether it is the right option for you. Here are two things you need to think about:
A Dynasty Trust is Irrevocable
Once a dynasty trust is established, you, for example, cannot change your mind about accessing the assets in the trust. This can be a good thing or a bad thing, depending on the circumstances.
If an individual is sure that he or she wants to establish a dynasty trust, then irrevocability can be seen as a positive feature. However, if the grantor later decides that he or she needs access to the assets in the trust or wishes to change the terms of the trust agreement, the irrevocability can be problematic.
As such, it is imperative to work with a skilled attorney when creating this type of trust so that it covers all your needs and so that you and your heirs can maximize the benefits.
Choosing a Trustee
When it comes to dynasty trusts, one of the most important decisions you will make is choosing a trustee. This person will be responsible for managing the trust and its assets, so it is important to choose someone you trust implicitly. Here are a few things to consider when choosing a trustee for your dynasty trust.
First, consider whether you want a corporate or individual trustee. There are pros and cons to both, so it is important to weigh your options carefully. A corporate trustee may be more expensive, but they often have more experience and resources at their disposal. An individual trustee may be less expensive, but they may not have the same level of experience or commitment level.
Next, consider the experience and qualifications your ideal trustee should have. Ideally, you want someone with experience in investment management and estate planning.
How Do You Set Up a Dynasty Trust in Texas?
If you are considering a dynasty trust, speak to our experienced estate planning attorneys to learn more about how it works and whether it is suitable for your situation. We can help you navigate the legal requirements and get one set up.
