You have worked hard to accrue wealth over the course of your career. You want that wealth to benefit your children, grandchildren and beyond. But simply leaving the money to them in your will puts it in danger of dissipation. Each time one of your descendants gets a divorce or predeceases their spouse, half or more of their share of your estate could be diverted, and might not make it into the hands of the next generation. A legacy trust can help you to counteract these future events to a large extent.
How dynasty trusts work
A dynasty trust is a trust that will continue to function independently to the benefit of your chosen beneficiaries during your lifetime and after your death. Depending on your strategy, you can set up your dynasty trust to last for a certain amount of years, or until the money in it runs out. This means that you can decide what will happen with the contents of the trust for several generations after you pass away.
Your attorney can design your dynasty trust to pay a certain amount of money on a monthly or yearly basis to each of your children. You can include any of their present and future descendants as beneficiaries of the trust as well.
It’s important to note that New York is one of the states that have codified a rule against perpetuities. This limits the duration of a New York trust to the lifetime of someone alive at the time of the creation of the trust plus twenty-one years. If you want to create a dynasty trust that will last longer than that, you will have to create it in a different state.
How they protect your wealth
Your children will not have access to the trust itself, and they will not be able to withdraw any of the principal. This means that the contents of the trust will be safe from your children’s creditors – such as if they were to declare bankruptcy.
If your child were to get divorced, a divorce court could not reach the trust’s principal to divide it as marital property. If your child were to predecease their spouse, the trust’s principal would not pass to their surviving spouse, even under New York intestacy laws.
Dynasty trusts also insulate your assets from transfer taxes. That means that more of your hard-earned wealth will make it into the hands of your descendants without being diminished through estate taxes and generation-skilling transfer taxes.
Estate planning can be quite complex, and it can be difficult to plan for an unsure future and hypothetical future events. A dynasty trust can be a useful estate planning tool to make sure that your loved ones are taken care of for generations after you are no longer with them.