In order to preserve your money for future generations without having it subject to gift and estate taxes, dynasty trusts may be a good option for you. Dynasty trusts provide assets for generations to benefit while remaining outside the grantor’s or beneficiary’s taxable estates.
The primary advantage of a dynasty trust is the avoiding of gift and estate taxes over several generations. Federal estate taxes are free from payment in 2022 up to $12,06,000,000 ($24,12,000,000 for married couples). Federal estate taxes, ranging from 18 to 40 percent, are levied on estates with values above the exemption limit.
Additionally, in 2022, the lifetime gift tax exclusion, which is the sum you can give away without paying taxes, is $12.06. You can give someone up to $16,000 each year (in 2022) without it counting against your lifetime limit. Generation-skipping transfer taxes can also impact assets bequeathed to grandchildren. Grandchildren’s trusts still owe tax even if assets are placed in them. GST is exempt in the same way as gift and inheritance taxes. When the GST exemption is exceeded, the tax rate is 40%.
Obtain legal advice from a Philadelphia estate planning lawyer to determine what steps you need to take to qualify for benefits.
How dynasty trusts function
An irrevocable trust, or dynasty trust, cannot be altered after it has been established. The tax will be due if the amount deposited into the trust exceeds the lifetime gift tax exclusion. However, after money is given to the trust, its beneficiaries can leave property to the following generation without having to worry about the gift, estate, or GST taxes being applied to it. The assets you deposit in the trust are also taken out of your estate and have room to develop elsewhere.
Although the trust’s trustee can also be a beneficiary, it may make more sense to have a professional fiduciary, such as a bank or other financial organisation, serve in that capacity, given that the trust is intended to exist for generations. The trustee administers the assets and makes distributions under the terms of the trust agreement. Typically, the trust pays for the beneficiaries’ maintenance throughout their lives. It might instruct the trustee to make regular income distributions, periodic principal distributions, or distributions based on the beneficiary’s need, for instance.