Consider a dynasty trust! Or: Why Bill Gates doesn't care about estate tax.

[Hannah Bell]

Dynasty trusts are long-term trusts created specifically for descendants of all generations. Dynasty trusts can survive 21 years beyond the death of the last beneficiary alive when the trust was written.

If you were setting one up today, and you had a 2 year-old grandchild, your dynasty trust could last well over 100 years. Long after you're gone, a dynasty trust can distribute income and principal exactly the way you would have wanted.

There are no tax savings when you create a dynasty trust. Dynasty trusts are often funded using your Estate Tax Credit (currently $2 million per individual, $4 million per couple).

The tax savings occur later at the deaths of your descendants. Even after the trust's assets have been accumulating for years, they remain free from federal gift and estate taxes for the life of the dynasty trust. That means no federal taxes on:

- Distributions from the trust to the grantor (the founder of the trust) or the grantor's descendants while the trust is in force;

- Distributions at the descendants' death while the trust is in force;

- Distributions of trust assets when the dynasty trust ends.

The estate tax savings can be enormous. Considering estate tax rates climb as high as 46%, and that tax is applied to each generation, you could end up saving up to 73% of your estate through three generations.

For instance, suppose you have $1.00 now. Assuming an estate tax rate of 46%, that $1.00 would shrink to 54 cents before it ever got into your children's hands. Now assume that their estate tax rate is 46% also. When your children die, that 54 cents will shrink to 29 cents! By the time your grandchildren see the benefits of your lifetime of hard work, $1.00 will only be worth $0.29. To pass $1 million on to your grandchildren, you would have to start with close to $5 million.

That's where the dynasty trust comes in. That $1.00 is not consumed by estate taxes, and is able to keep working for your heirs. In fact, let's assume a modest 6% annual rate of return. If your dynasty trust lasts for 100 years (which happens often), that $1.00 would turn into $339.30.

http://www.savewealth.com/planning/estate/dynasty/

[gmoney]

1. and my dad always told me I was better off not being born rich

I wanna dynasty, dammit...

[Pholus]

2. Mine always said it isn't a sin to be poor, just damned inconvenient... I can see why. nt

[badtoworse]

3. Does anyone know how much they cost to set up? - nt