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What Is a Delaware Dynasty Trust (And Do I Need One)?

By IncNow | Published January 23, 2019

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.”

What Is a Dynasty Trust?

A Delaware Dynasty Trust is a long-term multi-generational trust. It is created to pass family wealth from generation to generation while minimizing gift and transfer taxes. Typically a bank or other trustee controls trust distributions and management of its assets. Trust assets that remain in the trust are not part of its beneficiaries’ taxable estates, which provides a great way for settlors to transfer wealth over time with minimal tax impact.

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 Partnership at a non-marketability and non-control discount to get even more benefit. Sometimes this type 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 beneficiaries who are U.S. citizens. It doesn’t matter if the donor or the beneficiaries reside outside of Delaware. It can even be used for unborn beneficiaries 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, P.A. sometimes serves as qualified trustee to save clients money on expensive premium priced trust companies.

Using the federal generation skipping transfer tax exemptions to set up 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.

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When deciding where to form your company, consider that Delaware has advantages over your home state that may benefit you. Go