Like many people, you likely hope to be able to pass down your estate to your children and/or grandchildren when you are gone. To do that, you need to protect your estate assets now, while you are here. Whether you realize it or not, there are likely a number of possible threats to those assets – some are obvious while others are not. Moreover, there may be threats to your assets lurking around the corner in the future that you cannot anticipate now, making it even more important to incorporate asset protection strategies into your estate plan now. For example, a dynasty trust may be an excellent St. Louis asset protection strategy for your estate plan. The best way to get individualized advice regarding your estate plan is to consult with an experienced Missouri estate planning attorney; however, a basic knowledge of how dynasty trusts work is a good place to start.
What Is a Dynasty Trust?
When a parent creates a trust for children, the goal is often to create a staggered distribution of the assets held by the trust. The incentive is often to avoid a lump sum distribution to a young adult child who may not be prepared to handle such a large amount of money all at once. For example, if you plan to leave $1 million in assets to a child, you might distribute one-quarter of the assets ($250,000) when the child turns 18 or 21, another quarter ($250,000) when he/she reaches age 25 and the remaining half ($500,000) when the child turns 30 years old. With a dynasty trust though, the goal is to hold onto the family wealth for as long as possible, shielding that wealth from creditors, divorces, bankruptcy, and other potential threats to the family wealth. Beneficiaries of the trust may be entitled to interest earned on the Principal, or even access to the Principal itself for emergencies or small distributions; however, the majority of the family wealth remains in the trust for as long as possible in a dynasty trust.
How Does a Dynasty Trust Work as an Asset Protection Strategy?
You may not realize all of the ways in which your hard-earned assets could be at risk because threats to your assets can come in many forms and from many sources, including:
- Creditors of yours
- Creditors of a beneficiary
- Your own divorce
- The divorce of a beneficiary (this is a BIG one that people often don’t think about until it is too late)
- Business debts and losses
- Long-term care costs when you are older
Because it is impossible to plan for all of these possibilities, the only sure way to keep your assets out of the reach of all of these potential threats is to remove them from your estate. One way to do that without losing complete control of the assets, and without losing the benefit of the assets, is to transfer the assets into the right type of trust. A dynasty trust works as an asset protection tool because when you transfer assets into a dynasty trust those assets become the legal property of the trust. As such, you are no longer the legal owner of the asset and, therefore, you cannot lose the asset to a creditor, in a divorce, or even a bankruptcy.
The Rule Against Perpetuities – How Long Can a Dynasty Trust Protect Your Family Wealth?
The objective behind the creation of a dynasty trust is to protect and shield your assets, and allow them to continue to grow, for as long as possible. How long is that? The answer to that often depends on the state in which the trust is created and how that state views the “Rule Against Perpetuities.” The Rule Against Perpetuities is a fairly complex legal concept, the basic idea of which is that a trust must end 21 years after the death of the youngest beneficiary alive at the time the trust was created. For example, imagine that you create a dynasty trust today and name your children and grandchildren as beneficiaries. At the time you create the trust, the youngest beneficiary alive is your granddaughter Susie who is five at the time. Susie lives to be 90 years old, dying in the year 2101. The trust would then be forced to terminate in the year 2122, exactly 21 years after Susie’s death. For many years the Rule Against Perpetuities governed how long any trust could continue. In recent years, however, states have revisited the Rule and either re-interpreted it, or done away with it entirely. Without the Rule of Perpetuities, a dynasty trust may be able to continue indefinitely.
For more information, please join us for one of our upcoming free seminars. If you have additional questions or concerns about St. Louis asset protection strategies or dynasty trusts, contact the experienced Missouri estate planning attorneys at Amen, Gantner & Capriano, Your Estate Matters, LLC by calling (314) 966-8077 to schedule an appointment.