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Does a dynasty trust help you avoid paying taxes?

On Behalf of | Aug 11, 2021 | Trusts |

Residents of Connecticut who want to help their families avoid having to pay taxes on their estate may want to consider setting up a dynasty trust. While dynasty trusts may not be the best solution for everyone, it may help to think about what will happen to your assets after your death.

What is a dynasty trust?

Many states have a time limit on how long an estate can exist. In many states, that time limit is 21 years after the person creating the estate has passed. On the other hand, a dynasty estate has no time limit. Therefore, assets can pass from one generation to the next until there are no more assets in the estate. In theory, if there is enough money in the estate and sound financial planning is utilized, that asset transfer solution could be forever.

Do beneficiaries have to pay taxes on a dynasty trust?

Many types of taxes do not have to be paid on a dynasty trust. These include gift taxes, estate taxes and generation-skipping transfer taxes.

Are there other benefits to a dynasty trust?

In most states, a dynasty trust cannot be used as an asset during a divorce. Therefore, the person who inherited the money gets to keep it in their family. Secondly, even if the assets increase in value, the beneficiaries will not be charged taxes on the increase in most cases.

Who controls a dynasty trust?

A trustee must be named by the person creating the dynasty trust. In most cases, it will be a financial advisor or a lawyer.

If you have considerable assets, it’s likely that you want to pass them on to your family members upon your death. A dynasty trust may let you do so while avoiding extra taxes being placed on your heirs.