By Steven J. Gibbs, Esq.
The term “dynasty trust” sounds like something that could only be useful for aristocrats or folks with more money than they could possibly spend in a lifetime. Jeff Bezos might need a dynasty trust. Or Bill Gates.
But most estate plans don’t need that sort of thing, right?
Well … it’s not quite so simple. Dynasty trusts are a useful tool, designed for a specific purpose – keeping valuable assets in the family over multiple generations. If that’s your goal, a dynasty trust might be just what the doctor ordered, even if you have a moderate-sized estate.
What is a Dynasty Trust?
Unlike some trusts used in estate planning, dynasty trusts are, by definition, long-term. In Florida, they can be arranged to last more than 360 years, which, in practical terms, makes the trust essentially perpetual. Of course, a dynasty trust does not have to last that long and can be limited to just a couple generations. The fundamental idea is that you want more than just the next generation to benefit from the assets held in the trust.
How do Dynasty Trusts Work?
A dynasty trust commences when the grantor executes a declaration of trust and transfers assets into the trust. Dynasty trusts can be either testamentary (created by will) or inter vivos (created while the grantor is still alive) AND may be established in either an irrevocable or revocable trust instrument. The key is that to remove assets from the grantor’s taxable estate, the trust must be inter vivos and irrevocable at the time of the transfer of assets to the trust.
Florida is an attractive jurisdiction for dynasty trusts due to its 360-year Rule against Perpetuities and because there is no state income or estate tax. Between the friendly tax structure and the extended timespans, Florida offers a highly advantageous legal framework for dynasty trusts.
A grantor can fund a dynasty trust with cash, securities, real estate, or pretty much any other valuable estate asset that does not have to be held by a natural person. Once in the trust, assets are controlled and administered by the Florida trustee. This could mean investing cash, managing and leasing real estate, or voting on behalf of the trust if it owns stocks. Obviously, grantors should be careful to select a trustee who is competent and trustworthy. If the trust’s situs is Florida, the trustee should be someone familiar with Florida trust law. Due to the long-term nature, a dynasty trust declaration should include a mechanism for appointing capable successor trustees.
A trust’s “beneficiaries” are the people designated to receive the benefit of the trust’s assets in the form of distributions made by the trustee as directed by the declaration. A dynasty trust might name the grantor’s children as beneficiaries during their lifetimes, with grandchildren becoming beneficiaries afterwards or when they reach adulthood. Depending upon how well-funded the trust is and how well investments perform, this pattern could be repeated through numerous generations. A declaration can also give beneficiaries “Florida power of appointment,” which means they get to decide who receives their beneficial interests after death.
When creating a dynasty trust, the grantor has wide latitude in directing distributions which may be strictly determined OR allow for flexibility for the trustee.
The Asset Protection Benefits of Dynasty Trusts
Dynasty trusts are designed to keep assets within a family over multiple generations.
Along with preventing asset-squandering or attachment, a dynasty trust enables unified ownership of assets. Keeping the assets in one place facilitates more efficient asset-management by letting a single trustee manage the wealth for the trust, as opposed to numerous heirs managing smaller shares individually. By allowing for more investment flexibility, unified ownership creates the potential for greater returns.
Also, assets placed in an irrevocable dynasty trust allow assets to be held outside of the reach of the trustmaker’s creditors (subject to statutory lookback periods) thereby further protecting the assets for future generations.
How do Dynasty Trusts Decrease Taxes?
When a grantor with a qualifying estate transfers assets to a irrevocable dynasty trust, he or she can also transfer some or all of the gift/estate tax and/or GST exemptions. To the extent the transferred assets are within the $11.18 million exemption, the assets are not subject to estate and GST taxes for the duration of the trust. Any excess is subject to federal transfer taxes when the trust is funded but not again when future descendants become beneficiaries. Even if the grantor’s great-great-grandchildren receive distributions from the trust, there will be no further transfer taxes on the trust assets as long as the trust is effective. With a large estate over several generations, this can result in dramatic tax savings compared to the repeated estate taxes otherwise assessed each time wealth descends to the next generation. Just as importantly, growth on assets held in a dynasty trust is not subject to additional transfer taxes, regardless of the total value at the time of the grantor’s death.
In summary there are many ways that a dynasty trust can help preserve your wealth for future generations and ensure your assets continue to benefit your loved ones and legacy. An attorney with expertise on dynasty trusts in Florida can help you decide if a dynasty trust should be part of your estate planning strategy.
Steven J. Gibbs is a trust and estate planning attorney who provides complete Estate Planning, Trust Planning, Business Planning, Asset Protection, Elder and Medicaid Planning, Real Estate, Probate and Trust Administration legal services in Florida and California. Steve’s main offices are located in Fort Myers, Florida, and San Juan Capistrano, California. Estate planning legal services are provided statewide in these locations.
The Gibbs Law Office was founded by Steven Gibbs in January 2009 upon the commitment to provide client-centered legal services.
Steven Gibbs founded the Gibbs Law Office in January 2009, committed to providing client-centered legal services.
Steve as he would rather be called, is not your typical attorney. If you appreciate the staunch egotistical mannerism of most firms, you will be delighted with Steve’s unpretentious approach to educating and then assisting his client. Instead of giving you his complacent and lofty ideas, he would rather pursue your expec
tations with professional conversation about resolving your concerns under the Law. It’s your life and it’s his job to make your legal expectations come true while using years of his guidance and knowledge.
Steve was admitted to the Minnesota Bar in 1999, the Florida Bar in 2007 and was admitted to the California State Bar in 2014.
Along his career path, he was an associate attorney for an insurance defense law firm; an in-house real estate negotiator for Target Corporation; and corporate counsel for Civix, LLC and Vice President for North American Properties where he was responsible for various real estate transactions, including legal issues and negotiating unresolved business issues. Prior to opening Gibbs Law Office, PLLC, he was an associate with the firm of Roberts & Engvalson, P.A. where he gained his knowledge of trusts, estate planing and Wills. He opened his own firm in 2008 and now focuses on laws that will enrich the needs of his clients throughout their lives and those of their children. The firm has developed a practice dealing only with Trusts and Estate Planning, Wills, Medicaid Planning, Elder Law, Real Estate, Business Law and Probate.
Quoting from Steve “I decided to practice in areas that families will need as they progress down life’s path. To help them with a solid foundation that will carry them throughout there lives is a rewarding experience for me and my staff.”
GIBBS LAW OFFICE
Steven J. Gibbs, Esq.