Trust-based estate plans can include many different types of trusts, but the dynasty trust offers unique benefits for those who wish to leave a substantial legacy to their children, grandchildren, and future generations. This long-term irrevocable trust allows the savvy investor to pass wealth from generation to generation without incurring estate taxes or gift taxes as long as the assets remain in the trust. If it's properly designed, the trust can last for many generations—even sometimes running indefinitely.
About the Dynasty Trust
In the past, trusts were only allowed to run for a limited time period due to the rule against perpetuities—most often continuing for 21 years after the death of the last beneficiary who was alive at the time the trust was created. Today, however, 12 states have done away with this requirement and offer their own dynasty trust options: South Dakota, Nevada, Tennessee, Rhode Island, Alaska, Wyoming, Delaware, Ohio, Missouri, New Hampshire, Illinois, and Florida.
Dynasty trusts are most often used when a person's assets exceed the estate tax exemption. In 2021, this was $11.7 million per person or $23.4 million for a married couple. However, a dynasty trust may be appropriate for a family with fewer assets if there are concerns that adult children will not manage the money in a way that ensures a legacy for future generations.
A Look at the Dynasty Trust in Action
Recently, we helped an older client who had two adult children: one who remained in Mexico and one who was a U.S. citizen. We helped the client create a dynasty trust to transfer stock held in a Mexican corporation for the benefit of the adult child living in the U.S. The trust was drafted with language that fit within both U.S. and Mexico tax laws as a coordinated effort with the client's other consultants and advisors.
While the client's child who remained in Mexico was provided for using other estate planning tools, creating this dynasty trust ensured that the client's child and future generations in the U.S. would not need to worry about burdensome estate taxes as long as the stock remained part of the trust. The dynasty trust would ensure that each generation's pool of wealth was not reduced by 40% due to estate tax liability.
MEG International Counsel Can Help You Create an Estate Plan That Fits Your Unique Needs
For wealthy Mexican and Latin American investors, estate planning involves complex coordination with a team of advisors as well as the consideration of various border and jurisdictional issues. Request our whitepaper, 5 Ways Your International Estate Plan Can Be Pulverized by a Lawyer With No International Experience, to learn why it's essential that you work with an attorney who understands the unique needs of international clients. Then, contact us to schedule a consultation to discuss how we can help you achieve your estate planning goals.