Time is the only undefeated enemy, and no one lives forever. With careful estate planning in California, however, your wealth may live on and provide for your family for generations to come. One such tool you may employ to help preserve and pass on your assets is a dynasty trust. Before deciding if it is right for your circumstances, needs and goals, though, it is important to understand what a dynasty trust is and the benefits one might offer.

A dynasty trust is a type of long-term irrevocable trust. It is designed to pass family wealth from one generation to the next, without subjecting beneficiaries and families’ assets to taxation that might otherwise be incurred through other estate planning options or passing away intestate.

Through a dynasty trust, multi-generational families pay estate taxes once, instead of each time the assets are passed down. For example, your father died without a trust and left you an estate worth $10 million. Since estates over $5.34 million are currently subject to estate taxes, you had to pay taxes on $4.66 million of your inheritance. During your life, you grow your inheritance and pass away, leaving $15 million to your son or daughter. Without a trust or alternative arrangement in place, your son or daughter would have to pay estate taxes on the inheritance, and on and on.

According to Forbes, a dynasty trust also allows you to bypass the generation-skipping transfer tax. This is a tax imposed on grandchildren or remote descendants who receive inheritances, and is levied in addition to any gift or estate taxes that must be paid. The generation-skipping transfer tax is meant to prevent people from skipping a generation in order to avoid paying transfer taxes. Dynasty trusts, however, are eligible for exemption. Therefore, as long as the trust exists and the income and principal are used for the benefit of succeeding generations, the generation-skipping transfer tax does not apply.

This post is not intended as legal advice and instead should only be taken as general information.