A Dynasty Trust is simply a trust that spans a substantial period of time. These trusts are drafted so that wealth can be preserved in a trust for various generations. Wherein, the grantor dictates how much wealth is distributed to the trust and how this wealth is to be invested and eventually distributed to the beneficiaries. However, in designing Dynasty Trusts, it is imperative the grantor keeps an eye on two important points:
1. The estate tax ramifications. 2. The law of the forum state in which the trust is to be designed.
Concerning the estate tax ramifications, the Internal Revenue Code (IRC) allows some wealth to be placed into the Dynasty Trust and to skip generations almost indefinitely. However, the amount of wealth that can be put in these trusts is severely limited by the IRC. The generation skipping tax exemption is the limit of what can be put in this trust, and it is often a moving target.
The grantor will need to work with a qualified estate planning attorney to fully understand what those limits are. Many states will restrict the length of time that trusts can be in existence. For many states, the maximum term is about 90 years, and some states still follow the rule against perpetuities, which is an antiquated way of measuring the length of a trust’s life. In Nevada, we are fortunate to have the longest statute of limitations for these trusts: 365 years.
So, establishing a dynasty trust in Nevada will allow the family to put assets into a trust almost indefinitely. Nevada is by far the best jurisdiction to form Dynasty Trusts.
