A Dynasty Trust is a long-term irrevocable trust designed to pass family wealth to future generations while protecting the wealth from creditors and predators. If structured properly, a Nevada Dynasty Trust can avoid the estate tax, gift tax, and generation-skipping tax for up to 365 years. Dynasty Trusts are third-party trusts and offer the best asset protection for your beneficiaries.
The two biggest benefits come in the form of estate tax savings and creditor protection.
Assets held in a Dynasty Trust can grow exponentially through compounding interest, especially since there would not be an estate tax due upon the death of each successive generation. Assets gifted to the trust would count against your lifetime gift tax exemption, but any future growth would be outside of your estate AND your beneficiaries’ estates for as long as state law allows.
Nelson Rockefeller was famously quoted as saying, “The secret to success is to own nothing, but control everything.” Separating ownership and control in estate planning is how the wealthy protect their assets. Keeping assets in trust instead of making outright distributions allows your beneficiaries to benefit from the trust assets without directly owning them in their name. The trust is the legal owner of the assets, not the beneficiary, therefore the assets are off-limits to any potential creditors, including divorcing spouses.
A Dynasty Trust can be created at death or during the grantor's lifetime with dynasty provisions that can be included in any trust.
A Dynasty Trust may be referred to as an Intentionally Defective Grantor Trust (IDGT). This strategy involves gifting assets to an irrevocable trust to get them out of your estate. An IDGT is a grantor trust, and you are the responsible taxpayer. By paying income taxes on behalf of the IDGT from assets that are in your estate, you are further shifting more to the next generation without a gift or estate tax.
Dynastic provisions can be included in any trust document. Dynasty provisions give direction to the trustee to retain assets in trust for as long as state law permits. If the trust is drafted under Nevada law, the trust may last up to 365 years. Dynasty provisions can be included in revocable and irrevocable trusts.
As of 2020, an individual can gift $11.58M, or $23.16M if married, to their beneficiaries and would not have to pay a federal gift tax. This is referred to as their lifetime gift tax exemption. Any dollar over that exemption amount would be taxed at 40%.
Dynasty Trusts may provide significant tax benefits; therefore, any asset with the potential to appreciate is an appropriate asset to put in a Dynasty Trust. Life insurance is also a great asset because the premiums paid for life insurance are consistent (and generally lower than the death benefit), and the life insurance policy does not produce further taxable income.
Many people want to take advantage of the current gift and estate tax environment and set up Dynasty Trusts in Nevada. These high gift and estate tax exemptions are due to sunset on January 1, 2026, so there has never been a better time to take advantage of Dynasty Trusts.
We encourage clients to use an independent advisor-friendly corporate trustee in Nevada to administer their Nevada Dynasty Trust. IconTrust is an independent trust company in Nevada and can serve as trustee or directed trustee of your Nevada Dynasty Trust.
If you have any questions about Dynasty Trusts, please email info@icontrustnv.com or call 702-998-3700.
