For those with great wealth and the desire to control and protect the family assets for generations, while seeing to it that the generations that follow are required to pay as little taxes as possible, our Los Angeles estate planning attorneys recommend a dynasty trust. Why? Because a dynasty trust can essentially last forever. While the trust goes on for generations and generations, the assets in that trust, with proper planning, can continue to grow while your heirs are protected from estate taxes, creditors, and even their own bad habits. Ultimately, you can protect your fortune while saving money in the process. Here is what you need to know.
Dynasty Trusts Have Not Always Been Available
The concept of any trust potentially forever has not always been a possibility. In fact, historically, there was the “rule against perpetuities” which actually prohibited trusts from being created to “last forever.” While the old rules allowed trusts to last a pretty long time, they could not go on forever. Under the old concept, a trust was not allowed to last more than 21 years after the death of any potential beneficiary who was alive when the trust was first established. For some states, this rule is still in place. However, California and a few other states have changed the way trusts work.
California has adopted a different version of the rule against perpetuities which allows a trust to last for approximately 90 years. California’s rule is called the Uniform Statutory Rule Against Perpetuities. Ninety years is a long time and certainly longer than the historical 21-year rule. Other states, like Florida and Delaware, have gotten rid of the rule against perpetuities entirely. The result is that many financial institutions in those states make a huge profit from the fees charged to manage a seriously long-term dynasty trust.
Our Los Angeles Estate Planning Attorneys Can Help you Reduce Taxes
Proper estate planning, including generation-skipping taxes, gift tax exemptions, and dynasty trusts, is incredibly beneficial. California residents are allowed to give a gift of up to a specified amount before your estate will incur taxes. This is known as a personal estate tax exemption. If your total assets exceed that sum, you will need a legacy plan in place, which takes into consideration your estate tax liability. Experienced Los Angeles estate planning attorneys are prepared to take the steps you need to reduce the impact of estate taxes.
Understanding the Taxation of Trust Income
Although there are many tax benefits to using a dynasty trust, you should understand that there is still some taxation involved. Income taxes will still be owed on the income that is generated by your trust assets. So, you may choose (as some clients do) to only transfer assets to your dynasty trust that do not produce income. For instance, you may choose to incorporate stocks that do not pay dividends or tax-free municipal bonds in your trust planning. Discuss all of your options with our Los Angeles estate planning attorneys.
Advantages and Disadvantages of a Dynasty Trust
One advantage of using a dynasty trust in your estate planning is that you initially have a significant amount of control over the trust while your heirs have very little. That means you are free to choose which of your beneficiaries will inherit from the trust and precisely in what way you want them to inherit. In most cases, clients pass on the trust assets from generation to generation, but how you choose to do that is entirely up to you.
Since a dynasty trust is irrevocable, which it must be in order to provide the asset protection you want, once you establish a dynasty trust you cannot change your mind. Nor can your heirs and beneficiaries make any changes to the provisions of the trust, even if their circumstances change in the future.
Let our Los Angeles Estate Planning Attorneys Create Your Dynasty Trust
Most trusts are complicated estate planning documents and a dynasty trust is no different. Be sure to have an experienced estate planning attorney prepare your trust documents for you. Preferably, it should be someone with not only trust experience, but also experience regarding taxes and investments. Be sure you consider who should serve as a trustee. Since dynasty trusts are meant to last for decades, it would be best to use a financial institution that has been around for a long time and proven itself.
Join us for a free seminar today! If you have questions regarding estate planning, trust contests, or any other trust administration issues, please contact the Schomer Law Group either online or by calling us in Los Angeles at (310) 337-7696, and in Orange County at (562) 346-3209.
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