Dynasty Trusts: Attorney Steve Oshins on Dynasty Trusts

Published: 21st January 2009
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A dynasty trust is an irrevocable trust that leverages a person's estate, gift and generation-skipping transfer tax exemptions for as many generations as applicable state law permits. Whereas most attorneys draft trusts to provide for mandatory distributions to the grantor's children at staggered ages (e.g., one-third at age 25, one-half of the balance at age 30, and the balance at age 35), a dynasty trust is drafted to encourage the trustees of the trust to keep the assets in trust for the benefit of the beneficiaries and to allow the beneficiaries to "use" the trust property rather than receive it outright where it will be subject to estate taxes, creditors and divorcing spouses.

Effective October 1, 2005, the Nevada perpetuities law was modified to allow a dynasty trust to continue for up to 365 years with its assets protected from estate taxes, creditors and divorcing spouses during such time. Prior to the change in the law, Nevada dynasty trusts were limited to 90 years to approximately 120 years.

Most dynasty trusts are designed as Beneficiary Controlled Trusts. The beneficiaries usually become trustees of their own trust upon reaching the age at which most attorneys' trusts would distribute the trust assets outright to the beneficiaries. There are two general classifications of Beneficiary Controlled Trusts - discretionary trusts and support trusts.

Discretionary Trusts - For maximum creditor and divorce protection, an independent trustee is used to make discretionary distributions and other tax sensitive decisions. The primary beneficiary can be given the power to remove and replace the independent trustee. Additionally, the primary beneficiary can be the investment trustee and therefore is able to make all investment decisions. Thus, the primary beneficiary has the control over and use of the trust property as though he owned it free of trust. However, by having the dynasty trust as the owner, if drafted correctly, the assets are protected from estate taxes and from the beneficiary's creditors, including divorcing spouses.

Support Trusts - Alternatively, the primary beneficiary can be the sole trustee. With this option, the beneficiary can only distribute assets to himself for his health, education, maintenance and support. This is often called a "support trust," as opposed to a "discretionary trust" which uses an independent trustee for discretionary distributions. Although a support trust is simpler to administer than a discretionary trust, certain creditors of the beneficiaries of a support trust may access the trust assets, so it is less protective than a discretionary trust. One such creditor is a divorcing spouse of a beneficiary which is why the discretionary trust is the superior option.

About the author: Attorney Steve Oshins is a nationally known estate planning and asset protection attorney based in Las Vegas, Nevada with clients all over the United States. He is listed in the Best Lawyers in America in both the Estate Planning & Probate category and the Tax Law category and was named one of the Top 100 Attorneys by Worth magazine. He authored Nevada's 365-Year Dynasty Trust law in Nevada's 2005 legislative session. He can be contacted at 702-341-6000 or soshins@oshins.com. His web site is www.oshins.com.

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