Even the mighty oak starts as a tiny acorn. Historically, trusts had to end after a measuring life plus 21 years, to avoid the “dead hand” from ruling over future generations. These laws were known as mortmain statutes, with origins in the law back to the 13th Century around the time of the Magna Carta. The limitation of lives in being plus 21 years is called the “rule against perpetuities.” A few years ago, the State of Delaware repealed this for non-real-estate assets. In addition, Delaware recently passed very favorable laws for credit protection and eternal trusts. This along with a federal tax “generation skipping transfer tax exemption” allows you to provide for your families well being for generations to come. It is possible for this loophole to close at some point, but it is fully expected that those who get in under the wire, will have won the bet and their trusts could last “forever.”
Families often want to save taxes and provide for future generations. With a Delaware irrevocable trust setup as a Dynasty Trust you can avoid the dissipation of assets by transfer taxes. This allows your family to accumulate substantial wealth free of transfer taxes. Plus if none of the beneficiaries are in Delaware, there is no Delaware tax on capital gains or income. It also protects assets from creditors. This allows for assets to appreciate in a compounding manner more so than any other planning vehicle. Einstein said, “compounding interest is the greatest force in the universe.”
Funding these “forever trusts” can be accomplished with entities to allow you to put away more than the federal government allows by using entities to obtain discounts. Sometimes assets can also be contributed to the trust through a Delaware Limited Liability Company or Delaware Limited Partmership at a non-marketability and non-control discount to get even more benefit. Sometimes this types of entity is called a Delaware FLLC or a Delaware FLP, where the “F” stands for “Family.” Gift tax returns should be prepared and filed when these trusts are funded. It is possible that this tax loophole could be closed in the future by Congress, so setting it up soon could let you take advantage of this tax loophole before it closes.
Any US Citizen can take advantage of this Delaware Dynasty Trust for US Citizen beneficiaries, no matter what state the donor or the beneficiaries reside in outside of Delaware. It can even be used for unborn beneficies and set up by people who have no children and who are not married.
Additionally the advisor or distribution trustee can be a trusted advisor to you and need not be in Delaware, provided a Delaware Qualified Trustee is named who is a Delaware resident or a Delaware Trust Company. John Williams of The Williams Law Firm, PA, sometimes serves as qualified trustee to save money on expensive premium priced trust companies.
Using the federal generation skipping transfer tax exemptions to setup these trusts is necessary to avoid the estate tax over generations. It is a loophole that Congress has allowed that may result in a future aristocracy in America for those who take advantage of it now. Why sock away your assets for unknown future generations? We have heard that people usually like the idea of benefiting grandchildren and great-grandchildren because, “they don’t talk back.” Additionally it would be a safety net for future generations who will thank you decades and possibly centuries to come. It also keeps your hard-earned money from going to pay unnecessary future estate tax.