BY: Jon Daubert, JD, LL.M.
Senior Vice President & Trust Officer, Argent Trust Company
New legislation recently signed by Texas Governor Abbott could have tremendous potential for families and individuals who wish to create a long-term legacy and keep their trusts in Texas with Texans. The new law further bolsters the appeal of dynasty trusts, a proven estate planning tool that helps maximize the wealth grantors pass down to future generations.
The new regulation, HB 654, dramatically changes the “Rule Against Perpetuities” (RAP). Prior to September 1, 2021, the RAP provided that a trust must terminate within 21 years after “lives in being.” Under the new law, a trust can now last up to 300 years after the last beneficiary dies (with a few exceptions).
How a dynasty trust can help protect and grow wealth
Long-term trusts, often are referred to as dynasty trusts, can be an effective trust and estate planning strategy because they are designed to preserve the benefits of federal gift, estate and generation-skipping transfer tax exemptions for many generations. Additionally, dynasty trusts allow grantors to distribute funds to multiple generations. A dynasty trust is an ideal wealth management tool because it allows grantors to cement their legacy and support their children, grandchildren, great grandchildren and great, great grandchildren.
Another appealing factor of a dynasty trust is that grantors can dictate how their wealth will be invested, managed and distributed to beneficiaries. The grantor’s wish for control and governance can be as broad or as strict as desired. Provisions can be included that require beneficiaries to meet certain conditions to receive distributions to prevent beneficiaries from squandering funds.
A properly written dynasty trust will include provisions that protect trust assets from the beneficiary’s creditors (commonly referred to as a spendthrift provision). Ownership of the assets is transferred to the trustee, effectively preventing the beneficiary’s creditors from going after those assets to repay debts or other claims. It also protects family assets if a family member is sued or divorces.
There are no tax savings, aside from the estate tax exemption, when a dynasty trust is created. The assets funded into a dynasty trust and any appreciation of those assets, however, are no longer included in the grantor’s gross estate for federal estate tax purposes. The future tax savings could be considerable if the trust is governed by the laws of taxpayer-friendly states like Texas, which has no state income tax.
The trustee is typically a corporate trustee since, unlike an individual, a corporation does not die. An experienced corporate trustee can provide proven, professional management skills and will be knowledgeable of applicable trust laws unlike a family member or friend who is not experienced in the complicated and changing nature of trust regulations. A dynasty trust can be an ideal strategy to take care of your loved ones and their loved ones for generations to come.
Through our Tennessee charter, Argent Trust already has years of experience in the creation and management of dynasty trusts. If you believe you could benefit from trust and estate planning, please contact me or any one of our professionals at 800.375.4646. With six offices throughout Texas, we can help you as you create a legacy for generations.
