As they age and approach retirement, many New Jersey residents with wealth will want to start thinking carefully about how to pass it down to their loved ones.
Generally speaking, trusts of various types are instruments these people can use both to cut down on the time and expense of probate and to save on taxes or achieve other financial goals, including asset protection.
The unique feature about dynasty trusts is that they are designed to last for more than one generation. To give example, a New Jersey couple may use a dynasty trust to provide not only for their children but also their grandchildren and even more distant relatives.
More commonly, trusts allow one generation, parents, to pass their wealth to the next generation, their children.
Dynasty trusts may include tax benefits
For people of means, creating a dynasty trust may be a way to avoid additional taxes. For example, a federal Generation-Skipping Transfer Tax, or GST, applies to gifts and bequests to grandchildren that exceed exemption amounts.
This tax applies over and above any other taxes because it is designed to discourage estate planning which skips over a generation in order to avoid having to pay transfer taxes twice.
However, a person can put even over $10 million dollars into a properly created dynasty trust and still get the benefit of an exemption from the GST. Other tax and financial benefits may be available as well.
Evaluating whether a dynasty trust is the right option for a family is a complicated legal and financial question which will depend on a New Jersey resident’s circumstances. Likewise, the proper drafting of a dynasty trust requires detailed legal knowledge and experience.