President Donald Trump’s new tax law has resulted in significant tax changes. These changes apply to tax years 2018 through 2025. Without Congressional intervention, these changes will end.
Even with a potential end date, the wealthy can take advantage of this window with various legal tools. One example: the dynasty trust.
What is a dynasty trust? This estate planning tool is used to transfer wealth to future generations. A trustee, often a financial institution, is appointed to control the operation of the trust. The trustee retains control over the trust because the dynasty trust is an irrevocable trust.
This trust is unique due to its long life span. It is not uncommon for this type of trust to last for over a century. This life span is also what makes this trust of more interest in 2018. The tax savings that are present with the new tax law can help justify the costs that come with managing a trust for this longer period of time.
What is the benefit of having this type of trust within an estate plan? There are two main benefits. First, the creator funds a dynasty trust by transferring money out of the estate. This means the overall taxable estate decreases. This can translate to a lower tax bill.
Second, as long as the creator stays within the current exemption limit of approximately $22 million for a married couple, the transfer is not subject to a federal estate and gift tax.
These tools are very complex and are just one option for the efficient transfer of wealth. An attorney experienced in these matters can help craft the documents to meet your needs and mitigate the risk of any surprises in the future.