Trusts are powerful, versatile estate planning tools. They give you a lot of options and a lot of control. One of the most common examples is an educational trust, which allows you to put money aside to pay for someone else’s education, ensuring that they use the money the way that you planned for them to use it.
As a successful business owner, what your heirs do with their money matters to you. The amount of assets you will leave behind is significant. You want some control over who gets it, more than what a simple will can give you.
To that end, it may be wise to consider a dynasty trust.
What is it?
A dynasty trust is a long-term trust that leaves money for your heirs and their own descendants. It could go to your children, your grandchildren and your great-grandchildren. When you want to make sure that the money goes to all of your heirs and that you can benefit numerous individuals and generations for years and decades to come, this is one way to do it.
One key thing to remember is that a dynasty trust is an irrevocable trust. This means that you cannot change the trust at a later date. As soon as you fund the trust by putting your assets into it, then the money no longer belongs to you. It belongs to the trust. Don’t take this decision lightly. You need to know that you’re sure it’s the right move for you and your family.
What are the benefits?
These trusts have numerous benefits, such as spreading out money and giving you control, as noted above. But perhaps most important of all are the tax benefits.
Dynasty trusts are one way to get a certain amount of money — with a max of $11.4 million — around traditional estate taxes. You can save your heirs a lot of money and avoid passing on a significant tax burden by putting the money in the trust.
If the assets go over that limit of $11.4 million, some taxes may have to get paid on your end, but you can do it when you fund the trust. As long as the assets stay in that trust, they then get protection from estate taxes.
This can reduce the burden that would be created if you left the money directly to your heirs in a will, incurring estate taxes, and then they left it to their heirs, bringing on the taxes again.
Setting up a trust
Again, a dynasty trust is only one type of trust. If you think that any type would help your family, make sure you know what legal steps to take in Southern California to set it up.