Originally published on fwtx.com on July 29, 2021
BY: KATHY CHRISTOFFEL, CTFA
Market President, Argent Trust-Fort Worth Market
(817) 502-3586
Kathy Christoffel
Individuals and families who want to establish a long-term legacy and have their trusts remain in Texas and serve Texans now have something to celebrate. New legislation recently signed by Texas Governor Abbott strengthens the appeal of dynasty trusts, a proven trust and estate planning tool that helps grantors pass down their wealth to future generations.
The new law, HB 654, dramatically amends the “Rule Against Perpetuities” (RAP). Under the new regulations, a trust can now last up to 300 years after the last beneficiary dies (with a few exceptions). The old law stipulated that a trust must terminate within 21 years after “lives in being.”
As the name implies, dynasty trusts are long-term trusts that include features that make them a preferred trust and estate planning strategy for individuals and families thinking generations into the future. In general, there are two appealing benefits of dynasty trusts:
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.
1. One of the primary benefits of dynasty trusts is that they are designed to preserve the benefits of federal gift, estate and generation-skipping transfer tax exemptions for several generations. In addition to potential tax benefits, dynasty trusts permit grantors to distribute funds to multiple generations.
Aside from the estate tax exemption, it is important to note that there are no tax savings when a dynasty trust is created. The assets funded into the trust, however, are not included in the grantor’s gross estate for federal estate tax purposes – which means the future tax savings could be considerable if the trust is governed by the laws of a taxpayer-friendly state like Texas that does not have a state income tax.
2. Another appealing aspect of a dynasty trust is that grantors can direct how their hard-earned wealth will be managed and distributed to beneficiaries. The grantor’s mandate for control and governance can be as strict or as broad as desired. Provisions can be included that require beneficiaries to meet certain conditions to receive distributions to prevent beneficiaries from squandering funds.
Additionally, a properly written dynasty trust will include provisions that protect trust assets from the beneficiary’s creditors (this provision is commonly known as a spendthrift provision). Ownership of the assets is transferred to the trustee, which prevents the beneficiary’s creditors from trying to use assets to pay a debt or settle other claims. The spendthrift provision also protects family assets if a family member divorces or is sued.
When considering a dynasty trust, explore the benefits of using a corporate trustee since, unlike an individual, a corporation does not die. An experienced corporate trustee can provide proven, professional management skills and will understand trust laws – unlike a friend or family member.
Properly drafted, a dynasty trust is also known as a perpetual trust for good reason — it’s like having a “family bank” for loved ones and their descendants for generations to come.
To learn more about dynasty trusts or other estate planning strategies, please contact me via email (kchristoffel@argenttrust.com) or phone (817-502-3586) or reach out to any of our Argent Trust Company professionals at 817-502-2931. We are ready to help.
