Family Trust or Dynasty Trust in AZ
A dynasty trust, also know as a family trust, helps to transfer wealth from one generation to the next. Read about how to set up these trusts in Arizona here in this guide.
Did you know that the median inheritance left by people in the United States is around $69,000?
For some, that can be a nice nest egg. For others, it is not nearly enough.
However, the average can be a lot higher if factoring in every income and wealth level. Then, the average is over $4 million.
Say you are someone on the higher end of that spectrum. You want to make sure your children, grandchildren, and any future members of the family are taken care of. You also want to make sure they are protected from creditors, bad marriage or from themselves.
Sometimes a generation skipping transfer is also a good way to minimize estate tax.
Well, one way that you can do that is by setting up a dynasty trust. The Trust laws in Arizona are very good and you should take full advantage of them.
What is a dynasty trust? What are the benefits of a dynasty trust? How can future generations benefit from that estate planning strategy and trusts law?
These are six tips that you should know before creating one.
1. Consider Spouses of Children
If you're an older person with children who are married, you should have some idea of the character of their spouses. Perhaps, you are afraid that a divorce is inevitable with your child and their spouse.
Unfortunately, this is all too common in the United States. Every year, there are over 630,000 divorces.
This can be a risky situation if you are trying to leave your child an inheritance. Why? Because in certain situations, that can leave the spouse entitled to half of the assets that your child receives from the inheritance.
Your spouse's children may have rights to trust assets if the proper type of trust is not set up.
You may not feel like your child's marriage is going to last for life or after your death. Because of that, you may want to find a solution to ensure that they and their kids are taken care of.
A dynasty trust can help you ensure that your lifetime savings goes directly to your beneficiaries. A dynasty trust can add some extra protection against divorce.
2. Consider Immediate Financial Needs
The next thing that you should think about is the immediate financial need of each beneficiary in your estate. Dynasty trusts can be great for ensuring that your assets will be spread out through multiple generations. These type of trusts have asset protection provisions in them to protect your property for your beneficiaries.
However, they may not be great for those that could use the money immediately. These are more designed for people who have plenty of savings and that are financially stable.
Sometimes you are concern with a child that have no control of their life. Creating as irrevocable trust with specific distributions will help them not destroy their life and your lifetime savings in drugs or alcohol as well. Some clients like using this tool to protected their beneficiaries against themselves.
There are attorney costs when it comes to transferring this assets out and even taking that money sooner than anticipated. That may save the life of some of your beneficiaries my preventing them from using trust assets in an irresponsible way.
3. Add Grandchildren
You may be a parent that simply wishes to hand your assets over to your child and guarantee that they have money for themselves and their own children. However, something that you should consider doing is adding your grandchildren directly to your trust. A generation skipping transfer is sometimes used in dynasty trusts. Also adding a contingent beneficiary can save you some legal fees.
The reason for this is that it is unlikely that your trust is going to last forever. Generally, the distribution of assets starts after the death of the last person on the trust that was alive when it was created. The funds may or may not be available depending of the dynasty trust. Circumstances may also make the distributions limited. We use this estate planning tool for your beneficiary's benefit.
4. Use It as an Investment
With dynasty trusts, you may be able to use this as an opportunity to make an investment for your entire family. This is because if you have enough money in the trust and it can last long enough.
For example, let's say you have your grandchildren as people that are part of this trust. The trust is then expected to last 50 years because they are on it. So, if you do not take anything out of this trust over that time, and there is a 5% return every year on that investment, it can turn into hundreds of millions of dollars.
5. Select an Independent Trustee
Since this asset is designed to last for decades, you are going to want to find a trustee that you are confident will be around for that long. For that reason, it is recommended that you designate a professional trustee that is likely to be around 50-70 years later.
An independent trustee can handle the dynasty trust over generations.
6. Get Proper Legal Counsel
Finally, setting up dynasty trusts is complicated. There are taxes (state and federal), gift, property, creditors, etc involved.
Talking to an estate planning attorney will help you protect your wealth. A trust created by a lawyer, either revocable or irrevocable, usually has around 100 pages, not just 10 pages like the ones people download online. This ensures that you know exactly what you are getting into and understand exactly how the trust works in certain situations.
Create a Dynasty Trust
These are six tips that you should remember if you want to create a dynasty trust. Consider who you want to leave your assets to, the spouses of your children, adding your grandchildren to extend the life of it, consider your savings, and remember to get a professional independent trustee.
Call (480)565-8020 or click here to schedule your free consultation. We understand Arizona law, federal tax and estate tax, gift provisions, etc. Trusts are great tool to protect your property, and assets accumulated over a lifetime. Our legal team is great.