If you’re the beneficiary of a dynasty trust, you might not know what to expect. Dynasty trusts are complicated legal structures, and it makes sense that you might be a bit confused. Below is a quick guide to understanding dynasty trusts.

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0:00 The Beneficiary's Guide To Dynasty Trusts
1:38 How does a dynasty trust work?
2:52 What are the advantages of a dynasty trust?
3:58 What are the disadvantages of a dynasty trust?
5:12 Which states allow dynasty trusts?

What Is a Dynasty Trust?
A dynasty trust is a type of irrevocable trust created to pass wealth from generation to generation while minimizing taxes. As long as the assets remain in the dynasty trust, future generations likely won’t have to pay estate taxes, gift taxes, or generation skipping transfer (GST) taxes.

What Are the Advantages of a Dynasty Trust?
In addition to the obvious benefit of its duration, one of the primary advantages of a dynasty trust is the various types of tax relief offered. As a result of the Tax Cuts and Jobs Act of 2017, the federal estate tax exemption in 2020 is $11.58 million. This means that under current legislation every individual can put $11.4 million in a dynasty trust without having to pay any gift tax, estate tax, or GST tax.

A wellplanned dynasty trust can be used to avoid or defer state and local income tax in some situations. Additionally, the property that the grantor transfers to the dynasty trust and the appreciation value of that property is permanently removed from the grantor’s taxable estate, which provides even more tax relief.

Another tax advantage offered by a dynasty trust is that where beneficiaries lack control over the trust property it is not counted toward their taxable estates. Similarly, because the trust owns the dynasty trust assets and not the beneficiaries, a beneficiary’s creditors cannot go after trust property to pay for the beneficiary’s debts. As long as the assets remain in the trust, and the beneficiaries don’t have control over directing distributions, their creditors will have difficulty accessing those assets in all but a few limited circumstances.

What if I’m Not Getting My Dynasty Trust Distributions?
When you get your dynasty trust distributions depends on the specific terms of the trust. Suppose you are a beneficiary of a dynasty trust and you’re entitled to receive money under the terms of the trust. In that case, the trustee is required to give you your money. While trustees are given various levels of discretion, their authority is usually limited to some extent.

Beneficiaries who do not receive the distributions they are entitled to based on the dynasty trust terms can take legal action against a trustee to recover what’s owed to them and, perhaps, even have the trustee suspended, removed or surcharged for breaching their fiduciary duties.

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