Understanding How Dynasty Trusts Work
Several ways exist for individuals to pass their assets down to their children and loved ones in the case of their death. For some, it’s through a detailed will establishing a simple trust. However, if you want to establish a legacy that transcends generations, you may need to consider dynasty trusts.
A dynasty trust is by its nature irrevocable and comes with many advantages like asset protection and tax advantages, and is applicable for many generations. To help you understand how dynasty trusts work in California, we have put together this article.
Who Can Use Dynasty Trust?
For a better understanding of who can use dynasty trust, it is essential to note that they do not require grand dynastic aspirations, unlike other types of trust. As a family with substantial wealth and multiple assets, dynasty trust might be the best way to go as it is a better way to preserve fortune.
In California, there is no fixed amount of funds needed to set up a dynasty trust. So, if your long-term goal is to ensure that many generations besides those of your children benefit from your vast wealth, dynasty trust is advised. Also, families with a profitable business who want to keep that business running for generations to come can benefit from a dynasty trust.
Understanding How Dynasty Trusts Work for Wealth Preservation
While dynasty trust is unique in its operation and benefits, it can be set up like every other trust type. It starts with a grantor creating the trust and transferring assets to the trust, stating the purpose and beneficiaries.
Generally, the assets transferred into the dynasty trusts must be done while the grantor is alive. However, there is room for this to be done after their demise. When this happens, such trust becomes a testamentary dynasty trust. Worthy of mention is the irrevocability of the trust once it has been funded, and the rules remain rigid as well.
How Are Trustees and Beneficiaries Chosen in a Dynasty Trust?
When setting up a dynasty trust, certain things must be considered, and they include the trustees and the beneficiaries. In California, you will discover that a trust company or banks are mostly tasked with being the trustee. There are only a few instances where beneficiaries are made trustees because of issues surrounding taxes and creditor protection.
Other challenges that come with making the beneficiary a trustee include issues of misappropriation and implications on income taxes. However, with the right guidance, all of these issues can be considered, and mechanisms can be designed to ensure prevention.
What Are the Key Benefits of Dynasty Trusts?
Anyone contemplating whether to create a dynasty trust or not should know what you stand to benefit from before proceeding. Of the many benefits that come with this trust type, the most important is that they are tax-free. With a firm understanding of the law, it is possible to transfer assets to a dynasty trust without having to worry about the transfer taxes that come with it.
For this to be possible, you need to place property and accounts into trust and file a gift tax return. “The essence of a gift tax return is to allocate appropriate tax exemptions to the trust, ensuring the assets are excluded from your taxable estate,” says attorney Cindy Nguyen of Amity Law Group.
Conclusion
Setting up a dynasty trust requires that you pay attention to every one of its details, and this is where you may consider hiring a skilled estate planning attorney in California. With the help of an attorney, you can be well guided through the process and know the applicable laws as well as the creditor protection strategies that are available.
