If you are a wealthy individual who is weighing your estate-planning options, one possibility you might be mulling over is a dynasty trust. There are definite advantages to funding a dynasty trust. Namely, this kind of trust allows you to pass on your wealth to descendants while bypassing transfer taxes and the generation-skipping transfer tax (GSTT).
Here in Pennsylvania, a good way to fund a dynasty trust is with the proceeds from a life insurance policy. Funding an irrevocable life insurance trust lets you sidestep the taxes that would otherwise have to be deducted from your estate. You do have to ensure the proceeds will not exceed the GST tax exemption, however.
How a dynasty trust works
The taxes are kept below the exemption because the trust is not valued by the eventual insurance proceeds paid but by the total paid for the policy. It is a great tool when your goal is generational wealth.
It should be noted that historically, trusts were designed to end. For instance, many trusts state that trusts will end at a period of 21 years past the demise of the final beneficiary who was alive back when said trust was originally funded. Those parameters could still support trusts over a century old.
But with dynasty trusts, there is no rule that the principal has to ever be distributed. Therefore, at least in theory dynasty trusts can go on in perpetuity.
Is this the right option for you and your heirs and beneficiaries?
Many factors combine to determine the best estate-planning strategies for Pennsylvania residents. If you would like to learn more, seek the guidance of an estate planning attorney.
To learn more, visit our Trusts page.
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