Benefits of a Dynasty Trust

A properly executed dynasty trust will provide several advantages for trustees and beneficiaries as it can:

  • Receive cash or other assets as gifts that can be invested and/or used to pay the premiums of life insurance on the grantor and/or the grantor’s spouse;
  • Escape gift, estate and generation-skipping taxes on the assets and any growth therein (such as insurance proceeds) for the life of the trust; and
  • Maximize and leverage the available GST exemption amount, without paying gift tax, by investing in growth stocks and the like and/or by purchasing life insurance on the life of the grantor or the lives of the grantor and his or her spouse.
  • To avoid the higher income tax rates that apply to trust income, the trust can be drafted so that any trust income is taxed to the grantor while alive.
  • Another benefit of a dynasty trust is the ability to include provisions for the specific needs of children or other heirs. In essence, a grantor can include virtually any instructions in a dynasty trust, as long as the instruction is not illegal or against public policy.
  • Because a dynasty trust is irrevocable, future changes in the transfer tax laws should not affect it. Thus, the grantor is assured of receiving the benefits of the GST exemption and any lifetime exemption amounts used in funding the trust and those benefits should not be eliminated if the exemption is reduced in the future.