Do you need a dynasty trust for your divorce?

On Behalf of | Nov 16, 2021 | Asset Division

When leaving assets to children and grandchildren, you can rest easy knowing you can continue to care for them after you are gone. For people with considerable wealth, leaving assets to beneficiaries also come with some very real concerns about taxes.

According to Kiplinger, a dynasty trust can overcome numerous tax issues and ensure your heirs receive your assets as you see fit. This guide explains more about these trusts and how they can benefit your family.

What is a dynasty trust?

Dynasty trusts can hold any type of asset, including retirement plans, life insurance policies, securities, and many others. Once assets in the trust, they remain there until the grantor dies. At that point, the dynasty trust is split according to how many heirs the grantor has. This division continues for generations further down as the initial beneficiaries die.

Because trusts have protection against taxes, heirs can use assets as they fit in their lives without concerns. You must choose a trustee to manage the trust, which ensures proper development and management.

What kind of taxes do they help avoid?

While estate tax exemptions are typically very high, recent changes to the tax laws mean that more people will experience them in the coming years. When you disperse assets to children in the form of gifts, they assume tax liabilities. These tax liabilities can become significant depending on the size of the gift.

A similar circumstance can occur when gifting assets to grandchildren. In this case, heirs may become subject to a generation-skipping transfer tax. These taxes can add up and cause complications for heirs that are often hard to overcome.

Most parents want to continue protecting their kids, even after they are gone. A dynasty trust makes that possible, without your heirs needing to navigate complex tax issues.