In North Carolina, there are different types of trusts that can protect your assets. Family wealth may face risks associated with estate taxes, civil lawsuits, long-term care costs, bankruptcies, family member drug abuse, etc. However, it is possible to leave family wealth to future generations. Protecting your assets in perpetuity is possible with a Dynasty Trust, also called a perpetual trust.
What is a Dynasty Trust?
The purpose of a dynasty trust is to protect your assets and pass them down to future generations perpetually. When you transfer assets into a dynasty trust, you do not face gift, estate, and generation-skipping transfer taxes (GST) taxes unless the assets you transfer are worth more than $11.7 million.
“However, income tax will still apply to a dynasty trust. To minimize the income tax burden, individuals often transfer assets to dynasty trusts that don’t produce taxable income, such as non-dividend paying stocks and tax-free municipal bonds.” (1)
To set up a dynasty trust, your attorney works with you as you define the legal framework of the trust. Your attorney advises you as you consider and set the parameters of the trust. Statutes in NC demand particular language for the trust to succeed.
These types of trusts may have strict language that limits exactly when and how distributions are spent or given to beneficiaries. Or, the trust may simply lay out a given amount of distribution per month for a beneficiary to spend however they choose. Some trusts give out distributions to your children. Once one generation passes away, the distributions go to the next generation. However, you can also set up a Dynasty trust to give to children and grandchildren, etc. all at the same time.
More Than a Dynasty
The beauty of a dynasty trust is that you can choose how it works when you set up the parameters with your attorney. A perpetual trust may do more than just pass your assets down to the next generation in an orderly and well-thought-out manner. It also protects your assets.
Because a dynasty trust is a type of irrevocable trust, you cannot take your assets out once placed inside the trust. However, choosing to make the trust irrevocable gives it protection from creditors, family members who go bankrupt, long-term care costs, Medicaid Recovery in NC, special needs services for disabled members.
Because your assets are protected and only give distributions according to your trust plan parameters, beneficiaries may still qualify for government benefits when needed, such as Medicaid, SSI, or SSD.
Establishing a dynasty trust in NC can help your assets pass down until the trust depletes. No laws limit how long the trust may continue to give distributions to beneficiaries. The trust continues until it distributes all of the assets. Depending on how much you place into the trust, your legacy could last many generations.
Terms of the Trust
When you, the “grantor,” draw up a trust with the attorney, you place your assets into that legal framework so that a “trustee” (who is not you) can manage those assets according to the terms of your trust. The trustee for a dynasty trust is often not an individual but an institution such as a bank or investment firm.
When your trust may last for generations, it is crucial to appoint a trustee who can continue managing the trust for years to come. One individual may not be up to that task. In addition, if only one individual is the trustee, beneficiaries may file against the person more quickly to change the terms of a trust.
Once you fund your trust, you cannot change the terms and parameters you drew up with your attorney because it is irrevocable. You may not take your assets out unless you do so within the trust’s parameters. The trust terms dictate what happens to the assets and how they pass down to you and beneficiaries. The benefit of an irrevocable trust is that your assets are primarily untouchable and safe from creditors, lawsuits, taxes, and more.
We Can Help
Setting up a dynasty trust involves complex tax issues, financial considerations, and legal documents. Before drawing up a Dynasty Trust, you may need to carefully consider other issues such as long-term care coverage or taxes. However, at Vail Gardner Law, we make keeping your assets safe a reality. Work with us to draw up a trust that will protect you and your family for generations to come. Contact us today and find out how we can help.