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Long-term advantages of a dynasty trust

Although many New York residents understand that a trust can be helpful for minimizing the impact of situations like probate on an estate, they may not be aware of different types of trusts. Those with significant wealth, for example, might consider the use of a dynasty trust to provide a source of funds not only to their children but also to future generations. This type of trust offers some tax advantages as a grantor plans strategically around the federal gift tax exemption, which for 2015 is $5.43 million. By funding a trust with less than this amount, the tax-protected resources included in the trust have the ability to grow tax-free.

A dynasty trust also offers certain protections to future heirs who might encounter financial obligations because of business or legal activities or divorce. A dynasty trust keeps resources available to the heirs without exposing them to losses that might occur if an inheritance is received outright. Additionally, a dynasty trust can be designed to ensure that certain goals are met before an heir receives their inheritance. A grantor might use this strategy to ensure that a family company continues to operate or to prompt heirs to complete their college educations.

A quiet trust can be used to avoid influencing the actions of heirs. A trustee would be instructed to disburse an inheritance as a benchmark is reached, but this would not be disclosed to the potential heir in advance. This may be beneficial to those who might be less motivated to attend college or meet other goals if there is knowledge about an inheritance.

A comprehensive estate plan can be important for people who have significant resources to leave to their heirs. Although ideally suited to those with significant wealth, a dynasty trust might be an option for a person with modest resources as well. An estate planning lawyer might recommend this strategy for protecting a client's heirs from unanticipated losses.

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