Family financial trusts can last forever
By Leonard Wiener
You may not be able to take it with you, but a growing number of upper-income people are being encouraged by estate planners to at least not pass on all their wealth at once.
Instead of just naming children and grandchildren as heirs, family benefactors can now under changing state laws set aside funds in a so-called dynasty trust to provide for multiple generations far into the future—great-great-grandchildren and beyond.
"Successive generations can benefit from this thing forever," says Robert Sitkoff, a law professor who will soon join New York University.
Long-term compounding of investment gains, limited distributions to each generation, and savings on tax can combine to create huge family nest eggs—perhaps hundreds of millions of dollars over four or five generations instead of merely tens of millions, according to New York estate attorney Gideon Rothschild. Many with more-modest ambitions, though, are also setting them up.
Currently 21 states and the District of Columbia allow perpetual dynasty trusts, or at least trusts that can run for so long—1,000 years in Wyoming and 360 years in Florida, for example—that they are, in practice, perpetual. You do not have to live in a state to set up a perpetual trust there, which is why legislatures have been lobbied by local lawyers, banks, and money managers to loosen trust rules as a way to attract out-of-state business and retain what they have.
Creating a perpetual trust primarily means setting up a regular trust with no ending date. Deciding what assets to put into the trust, providing for the amount and timing of payouts, and navigating tax, investment, and life insurance considerations require guidance from a skilled estate planner. The trusts are most likely to be practical for people with at least a few million dollars of current assets.
Saving on estate tax is a primary factor in the long-term payoff. If proposals to end the estate tax, or sharply limit it, are enacted, dynasty trusts would lose some punch. But financial benefits would remain, and the long-term control of assets could appeal to some family heads. A report last year by Congress's Joint Committee on Taxation suggested limiting the tax breaks of dynasty trusts, but there's been no movement to do so.
While allowing assets to amass can sound good in theory, the virtually unlimited time span causes some clients to have second thoughts, advisers say.
"People know their grandchildren, but when you talk about beneficiaries who won't even be here for years to come, they often lose interest," says attorney Peter Valente of Blank & Rome in New York. "People ask, 'Who will these people be? What will they be like?'"
Vital to a long-lived trust is flexibility in its terms, even allowing future beneficiaries and trustees to end the trust, say advisers.
You may not be able to take it with you, but a growing number of upper-income people are being encouraged by estate planners to at least not pass on all their wealth at once.
Instead of just naming children and grandchildren as heirs, family benefactors can now under changing state laws set aside funds in a so-called dynasty trust to provide for multiple generations far into the future—great-great-grandchildren and beyond.
"Successive generations can benefit from this thing forever," says Robert Sitkoff, a law professor who will soon join New York University.
Long-term compounding of investment gains, limited distributions to each generation, and savings on tax can combine to create huge family nest eggs—perhaps hundreds of millions of dollars over four or five generations instead of merely tens of millions, according to New York estate attorney Gideon Rothschild. Many with more-modest ambitions, though, are also setting them up.
Currently 21 states and the District of Columbia allow perpetual dynasty trusts, or at least trusts that can run for so long—1,000 years in Wyoming and 360 years in Florida, for example—that they are, in practice, perpetual. You do not have to live in a state to set up a perpetual trust there, which is why legislatures have been lobbied by local lawyers, banks, and money managers to loosen trust rules as a way to attract out-of-state business and retain what they have.
Creating a perpetual trust primarily means setting up a regular trust with no ending date. Deciding what assets to put into the trust, providing for the amount and timing of payouts, and navigating tax, investment, and life insurance considerations require guidance from a skilled estate planner. The trusts are most likely to be practical for people with at least a few million dollars of current assets.
Saving on estate tax is a primary factor in the long-term payoff. If proposals to end the estate tax, or sharply limit it, are enacted, dynasty trusts would lose some punch. But financial benefits would remain, and the long-term control of assets could appeal to some family heads. A report last year by Congress's Joint Committee on Taxation suggested limiting the tax breaks of dynasty trusts, but there's been no movement to do so.
While allowing assets to amass can sound good in theory, the virtually unlimited time span causes some clients to have second thoughts, advisers say.
"People know their grandchildren, but when you talk about beneficiaries who won't even be here for years to come, they often lose interest," says attorney Peter Valente of Blank & Rome in New York. "People ask, 'Who will these people be? What will they be like?'"
Vital to a long-lived trust is flexibility in its terms, even allowing future beneficiaries and trustees to end the trust, say advisers.
