If you’ve accumulated a considerable amount of wealth over the years or you’ve been fortunate enough to inherit a large sum and invested it wisely, you likely want those assets to be passed down to future generations. That means not just to your children and their children, but to those who come after them.
If that is one of your goals as you set about developing your estate plan, a dynasty trust has some significant advantages. Fortunately, New Hampshire not only allows dynasty trusts but puts no time limit on them. Under the law, a New Hampshire dynasty trust can continue in perpetuity – forever.
How does a dynasty trust avoid taxes?
A dynasty trust is an irrevocable trust that, when properly established, allows wealth to be inherited by subsequent generations without being subject to estate, gift or transfer taxes that can whittle away some of that wealth. It’s exempt from federal estate tax as long it doesn’t total more than the federal estate tax amount, which is currently just over $12 million.
There are other tax advantages. The amount placed in a dynasty trust is not taxable as part of the grantor’s estate or any of the estates of the beneficiaries. It also isn’t subject to claims by creditors.
Earnings from a dynasty trust can be subject to income tax on the beneficiary whose assets earned the money. By placing assets in dynasty trusts that are tax-free or don’t pay dividends, you can limit the amount of income tax that your beneficiaries have to pay on earnings.
Dynasty trusts are typically managed by a corporate trustee
Typically, because the trust is intended to last for many generations, the grantor (the person who establishes the trust) names a financial institution or trust company to be the trustee rather than a family member who will eventually pass away themselves. Because the trust, by design, is irrevocable, once it is set up and funded, neither the grantor nor any beneficiaries will be able to make any changes to how the money is managed and distributed. However, a grantor can set detailed or broad terms.
This is just an overview of dynasty trusts and how they can benefit families for generations. If you’re considering establishing one, it’s crucial to have experienced legal guidance.