In today's tax system, estate and gift taxes may be levied every time assets change hands from one generation to the next. Dynasty trusts avoided those taxes by creating a second estate that could outlive most of the family members, and continue providing for future generations. Dynasty trusts are long-term trusts created specifically for descendants of all generations. Dynasty trusts can survive 21 years beyond the death of the last beneficiary alive when the trust was written.
Illinois Irrevocable Generation Skipping or Dynasty Trust Agreement For Benefit of Trustor's Children and Grandchildren
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Creating an Irrevocable Dynasty Trust Luckily even residents of Indiana and Illinois can avail themselves of the dynasty trust advantages of other states by establishing trusts in those jurisdictions. Transferring assets to the trust would, of course, typically use a portion of the donor's federal estate tax exemption.
A dynasty trust allows wealth to be available to each generation while never being reduced by transfer taxes. In 2020, the generation-skipping transfer tax exemption amount is $11,580,000 per person and is the same as the lifetime gift and estate tax exemption amount.
Although your grandchildren (or any individual at least 37 ½ years younger than you) act as the beneficiaries, your children still benefit from the trust. Not only can they receive any income produced by the trust's assets, they get to keep their own estate completely separate from it.
An effective way to pass wealth to future generations is through the use of a Dynasty Trust. A Dynasty Trust (sometimes also referred to as a Generation-Skipping Trust), is an irrevocable trust that continues for as long as the applicable state law allows.
Generation-skipping trusts offer tax advantages through the ability to bypass a generation when leaving assets to heirs. For example, a settlor may leave an inheritance to his or her grandchild without ever transferring ownership of the assets to the child's parents.
Because a generation skipping trust is irrevocable, the trust cannot be broken, modified, revoked or dissolved like a revocable trust, which can be changed or amended any time.
A dynasty trust is a long-term trust created to pass wealth from generation to generation without incurring transfer taxessuch as the gift tax, estate tax, or generation-skipping transfer tax (GSTT)for as long as assets remain in the trust. The dynasty trust's defining characteristic is its duration.
What is a Generation-Skipping Trust? Generation-skipping trust refers to a type of trust which is a legally binding agreement designed to enable a trustee to transfer assets to the next generation levels without it being taxed.
Generation-skipping trusts can still provide some financial benefits to the next generation because the grantor can give children access to any income the trust's assets generate while still leaving the assets themselves in trust for grandchildren.
A dynasty trust is a great option for families that are seeking to transfer wealth from generation to generation. If you have a sizable estate and wish to transfer wealth without triggering certain estate-planning taxes, a dynasty trust could be a great option. As a reminder, dynasty trusts are irrevocable.