In our previous post, we started taking a look at dynasty trusts and their increased use in recent years, especially since gift and estate tax exemption have risen. Since 1986-when Congress made major changes to the generation-skipping transfer tax-dynasty trusts have increased in popularity. Delaware-a particularly popular state in which to estate dynasty trusts-is one of several states that have eliminated past restrictions on the ability to pass gifts to remote descendants.
In Delaware, most dynasty trusts set up by individuals living out of state do not owed state income or capital gains taxes on accumulations. The taxes are typically only paid when distributions are made from the trust. That isn’t the case in some states, where undistributed gains and income in the trust are taxed with federal income and capital gains tax.
Not every state allows dynasty trusts. In New York, trusts may not last any longer than the lifetime of the people currently alive, plus 21 years. Connecticut law allows trusts to last the longer of 90 years or the lifetime of individuals currently alive, plus 21 years.
At present, many individuals are taking advantage of increased gift and estate tax exemptions to fund dynasty trusts. Cash, stocks and various other assets can be used to fund the trusts. Costs of setting on up range from around $3,000 to over $30,000, depending on whose services are sought out. Anybody can set up a dynasty trust, since there is no minimum around for funding the trust. Clients with $20 million or more in assets often take advantage of the full exemption amount, which is currently at $5 million.
Experienced attorneys are able to advise clients on how to use dynasty trusts to enhance gifts and benefit family businesses.
Source: Bloomberg, “Dynasty Trusts Let U.S. Wealthy Duck Estate, Gift Taxes Forever,” Elizabeth Ody, 28 July 2011.