Early in 2017, Gail Miller, owner of the Utah Jazz, announced that she was no longer the owner of the Utah Jazz or the Vivint Smart Home Arena. Instead, she put these assets into a dynasty trust for her family down through the generations. Her decision raised awareness of an estate planning strategy that many thought of as a tool for just the ultra-wealthy.
Dynasty Trusts Explained
A dynasty trust is also known as a legacy trust. It is a special kind of irrevocable trust that is meant to last for multiple generations after the person who created the trust dies. Trust beneficiaries may receive distributions from the trust, but the trust owns and controls all the assets for as long as the trust is allowed to exist. States have laws that determine how long a trust can last. The default law is that a trust has to end 21 years after the death of the last named trust beneficiary. Many states have changed this law, and in Colorado the trust can last for much longer than 21 years.
Advantages and Disadvantages
Wealthy families use dynasty trusts as a way to keep money within the family and to protect the family’s accumulated wealth from creditors, wasteful spending, or other factors. Dynasty trusts allow families to consolidate their wealth and control how that wealth is distributed to family members down through the generations. These trusts also protect wealth from state and federal taxes, which allows the family wealth to grow rather than be hit with a tax bill multiple times during the trust’s existence.
Of course, no tool is perfect, and dynasty trusts do have disadvantages. Dynasty trusts are irrevocable trusts, which means that they are incredibly hard, if not impossible, to change at any time. They also interact with many tax laws, regulations, and state laws. This creates a complicated web that makes it further hard to change these trusts. This can make designing a dynasty trust particularly hard, as the trust has to try to foresee years or decades in advance any family changes that may impact how the trust works or make a loved one’s life incompatible with how the trust is designed. This can be a difficult and complicated task, and the possibility of falling short of your goals is real.
Is a Dynasty Trust Right for Your Family?
Dynasty trusts can be an excellent estate planning strategy for wealthy families who want to protect their wealth from estate taxes and family members down through the generations. If, however, you want to maximize your trust’s flexibility to take care of your family’s changing situations, a dynasty trust may not be best for you. Contact The Rains Law Firm or schedule a complimentary initial meeting to discuss this option in more depth.