How to Set Up a Dynasty Trust

Set up a dynasty trust to provide distribution of your assets through several generations and take advantage of the generation-skipping tax transfer (GSTT). These assets are protected from estate taxes for generations. In some states, the dynasty trusts can last indefinitely. Other states limit the trusts to between 80 years and 21 years after the death of the youngest child living at the time the trust is put into effect. A few states have legalized dynasty trusts as perpetual, with up to 1,000 years' life.

Difficulty: Moderate

Instructions

1. Determine the amount of money to use to set up a dynasty trust. Keeping the assets in trust eliminates the possibility for beneficiaries to lose any of the funds through divorce, death tax or lawsuits. The beneficiaries are not the owners of the inheritance.

2. Set up a trustee for the dynasty trust. This can be an adult child until the death of the child (who can then hand the responsibility down to the next generation), or it can be through a financial institution for indefinite management of the trust.

3. Decide whether to fund the dynasty trust upon your death or during your lifetime. Lifetime funding provides asset growth with less tax impact.

4. Consider life insurance policies and stocks for placing in a dynasty trust. These assets tend to grow rapidly in trusts.

5. Use an experienced estate-planning attorney to set up a dynasty trust. An attorney who is familiar with the grantor's assets and beneficiaries can draft a document that is personalized for each beneficiary. If some family members are more able to care for themselves than others, the trust can be set up to provide accordingly.

6. Make a decision about using irrevocable life insurance to fund a dynasty trust. At the grantor's death, the policy pays enough to cover estate taxes.

7. Place stipulations on a dynasty trust that prevents your children and grandchildren from becoming "trust-fund kids." You can require them to obtain a college education and maintain a job to receive the trust income. Another option may be to match their earnings with income from the dynasty trust.

Tips & Warnings

• The recommended minimum to begin a dynasty trust is $500,000 over the amount you need to live comfortably. Keep in mind that you'll have to pay a percentage yearly for professional management of the trust.
• The dynasty trust becomes irrevocable upon the death of the trustor. No changes can be made by the beneficiaries or trustee.
• Consult an attorney familiar with estate planning and the state's current laws regarding dynasty trusts.

[woglesby]

on 10/9/2008 It would be helpful to have a list of the states which provide dynasty trusts. Am I missing this somewhere?

[sthomasmmg]

on 9/12/2008 Great Article!! 2 Thumbs Up!!