While speaking with Insider, Sandy Christopher commented on the increasing popularity of dynasty trusts in recent years.
Sandy’s comments appear in the article “How Rich Families Use Trusts That Last as Long as 1,000 Years to Save on Taxes and Benefit Future Heirs,” discussing the ways in which rich Americans utilize trusts to preserve their wealth. Tax cuts made during the Trump administration and revised limits on generation-skipping trusts have encouraged the avoidance of wealth transfer taxes by planning well into the future. Dynasty trusts have grown in popularity as the generation-skipping transfer tax exemption has skyrocketed, according to Sandy. Better known as GST, the tax is intended to keep families from avoiding estate tax by gifting to grandchildren or another relative at least two generations younger rather than their children.
“As you have a higher exemptions, it becomes much more meaningful to create an estate that can last as long as possible,” Sandy said. “The generation-skipping tax exemption is very, very powerful for people making significant gifts and creating trusts and putting together wealth structures.”
While the exemption is set to be cut in half by 2025, the longevity of these trusts (which is where they earn the name “dynasty” trusts) is how they earn their popularity. Many US states have changed their historic laws surrounding trusts, and dynasty trusts can now last a millennia or even indefinitely with some restrictions on certain assets. The trust is taxed once at a flat 40% above the exemption, and, while the heirs do not own the assets directly, they have a right to earn income from the trust, subject to income tax. The GST is paid only once, so a dynasty trust that continues to see its assets appreciate can last as long as the term of the trust set during its formation. Dynasty trusts also serve to protect assets from creditors and keep businesses within a family, and these assets are protected during a divorce.
Sandy indicated many of his clients aren’t interested in preserving their wealth for perpetuity. “When you really talk with people, they’re not really thinking of this in terms of that time period,” he told Insider. “They have short or shorter-term concerns about their family.”
You can read the article in its entirety here. Please note that a subscription may be required.
For further information, please contact:
Alistair ‘Sandy’ Christopher, Partner, Withersworldwide