Dynasty Trusts are types of trusts that can last for centuries. If your family has significant wealth, a Dynasty Trust can allow you to gain control of how it’s shared for many generations. There are also various other benefits, including the ability to avoid estate taxes.
In this guide, our Florida estate planning attorneys will explain what Dynasty trusts are in understandable yet detailed terms:
What Are Dynasty Trusts?
Dynasty Trusts are types of irrevocable trusts, created to allow wealth to pass from generation to generation (theoretically, for centuries). If assets remain in the trust, then Dynasty Trusts can bypass gift taxes, estate taxes and generation-skipping transfer taxes
Dynasty trusts are considered very useful and powerful wealth transfer tools with no specific termination date. They are commonly used by very rich families and individuals.
- Dynasty trusts can theoretically last forever.
- Pass wealth from generation to generation.
- Potentially no incurred estate taxes.
- You can currently put up to $11.58 million in a Dynasty Trust.
- Irrevocable trusts with terms that cannot be changed.
Read our guide on the different types of Trusts in Florida.
How Do Dynasty Trusts Work in Florida?
Trusts typically can only last a limited number of years that span around one to two generations. However, Florida is an ideal place for dynasty trusts thanks to its 360-year Rule against Perpetuities and because we have no Florida state income or estate taxes.
That rule means trust must terminate after 360 years following the beneficiary’s death – which is ideal grounds for creating generations spanning trust.
Dynasty Trusts begin from the moment a grantor (the trust creator) signs a ‘declaration of trust’ and transfers assets into the trust. The terms and rules cannot be amended once the trust is funded.
They can either begin while the grantor is alive or be created by will when the grantor passes away.
Dynasty trusts can be funded with cash, securities, real estate or any other asset of value that doesn’t require ownership by a ‘natural person’.
Grantors have the ability to broadly direct distributions with strict rules but can also provide freedom for Trustee control.
Once the assets are placed in the trust’s ownership, they will be controlled, managed and administered by the trustee.
The trustee has a responsibility to act in the best interests of the trust and its beneficiaries, which may include investing cash, managing and leasing assets, voting on stocks and distributing assets as per the terms of the trust.
Trustees are usually highly trusted individuals with strong legal knowledge. For this reason, it is advised that you use a financial institution or an estate planning attorney or Law Firm. There should also be a mechanism in the declaration that allows for the succession of Trustees.
The benefices of a Dynasty Trust will receive the benefits of the trust’s assets via distributions per the Trust’s terms. So as a grantor, you can dictate the way wealth is distributed for decades or even centuries to come.
Beneficiaries typically include the grantor’s children, followed by grandchildren and great-grandchildren. If desired, a declaration can also allow beneficiaries to receive ‘Florida Power of Appointment’, so they can decide who will next receive beneficial interests once they pass away.
If the Dynasty Trust is well-funded and well-managed, this system could be repeated across generations.
Dynasty Trusts and Taxes
Assets transferred into Dynasty Trusts can potentially be subject to the following taxes when the transfer is made and exceed federal tax exemptions:
- Gift Taxes
- Federal Estate Taxes
- GSTT Taxes
As of 2022, the lifetime exemption for Gift and Estate taxes is $12.06 million.
These rates are adjusted every year for inflation. Congress could raise or lower the exemptions at any point in the future, though.
Once assets are placed into a dynasty trust, the assets are permanently removed from the grantor’s taxable estate.
Beneficiaries lack control over trust assets so assets will not count towards their taxable estates. Trust assets are also protected from creditor claims as assets are owned by the trust, not the beneficiary.
Income tax still applies to dynasty trusts but can be minimized by transferring assets to dynasty trusts with nontaxable producing income.
Anyone considering tax-related estate planning decisions must always speak to an estate planning attorney first. The information provided here is for reference only.
How to Set up a Dynasty Trust in Florida
To create a Dynasty Trust in Florida, you need to execute a ‘Declaration of Trust’ and transfer your assets into the Trust. You can do this testamentary (comes into effect after your death), or ‘inter vivos’ (created while you’re still alive.
However, if you want to remove assets from your taxable estate, you must use an inter vivos and irrevocable Dynasty Trust. You must also define the location where the Trust will be administered and the Governing Law.
Creating a Dynasty Trust can be completed by working with a Florida estate planning attorney specializing in Dynasty Trusts.
You must choose a reputable and highly trusted lawyer.
- Firstly, you don’t want to tie your trust to a bank or trust company that may not manage the trust optimally.
- Secondly, flexibility is important for the uncertain future. Therefore, you must work with lawyers that know how to draft trust documents that allow for security yet flexibility for the future.
Our law firm, Battaglia, Ross, Dicus & McQuaid, has specialized in estate planning since 1958 and welcomes you for a free consultation today.
Who Should Use a Dynasty Trust?
Dynasty Trusts are desirable for individuals, families and family business owners with taxable estates looking to reduce transfer taxes for themselves and future generations.
Wealth can become available to the next generation without ever facing transfer taxes. This can ensure your family has guaranteed wealth for generations to come.
For some people, this may be suitable as the heirs won’t receive large sums all at once after death. Instead, beneficiaries can receive predetermined amounts at predetermined milestones. For example, upon an 18th birthday, marriage or birth of a child.
However, you must think wisely as what seems ideal for beneficiaries now make a change in decades or even centuries to come.
The Benefits of Dynasty Trusts: The Bottom Line
- You can preserve your wealth for up to 360 years in a Dynasty Trust in Florida. With a solid structure, you can allow for successor trustees and successor beneficiaries for generation after generation.
- You can transfer any valuable assets into the trust, such as securities, real estate, stocks and vehicles.
- Protect assets from creditors, bankruptcy and divorces in the family. If a grandchild files for divorce, the trust’s assets will not be accessible to their spouse.
- Control distributions and decide how your heirs receive wealth at milestones in their life, ensuring wealth is respected and protected.
- Make direct distributions to your beneficiaries in future generations.
Contact an Estate Planning Attorney for Dynasty Trusts Today
If you’re interested in creating a dynasty trust to help protect your family’s wealth for generations to come, then our Florida estate planning attorneys can help.
Battaglia, Ross, Dicus & McQuaid, P.A. is U.S. News and World Reports Tier 1 law firm in Florida, specializing in Estate Planning & Probate since 1958. With award-winning experienced estate planning attorneys, they can help you create a dynasty trust that is suitable for decades to come.