What is a Dynasty Trust?

The dynasty trust is a variation of the generation skipping trust that can be created now or it can be incorporated into your Last Will and Testament. The trust may state that the trustee should give the beneficiary only the net income from the trust or the trust may direct the trustee to distribute a specified amount on a special occasion such as obtaining a college degree or getting married or becoming an architect. The trust can be quite flexible.

Who should use a Dynasty Trust?

Two areas should be considered when determining whether you qualify for a dynasty trust. Estate and gift taxes are one area of concern and the State law on long-term trusts is the other. By contributing no more than the exemption amount, which is limited to $1 million during your lifetime because of present gift tax limitations, or $3.5 million at your death, you incur no gift, or generation skipping tax liability.

Your tax advisor should research your state law concerning any state exemption amounts or laws prohibiting long term trusts.