If you are creating an estate plan in Illinois, you may be wondering whether a dynasty trust would be a good option for your situation. If you want to preserve wealth across generations, it may be the right choice for you, but it is important to understand what a dynasty trust can do as well as any potential drawbacks.
Disadvantages
In Trusts are either revocable or irrevocable. Perhaps the biggest disadvantage of a dynasty trust is that it is irrevocable, meaning that once you have moved assets into it, those assets are no longer within your control. Another potential disadvantage is that establishing it can be costly, but when you consider that in 2023, a dynasty trust could hold assets worth $12.92 million without incurring a federal estate and gift tax, the cost may seem more proportionally reasonable.
Tax advantages
There are a number of advantages to a dynasty trust, which essentially allows you to create a trust that lasts far longer than a traditional one. If you have a substantial estate and you want to make sure that your assets go to your grandchildren and future descendants as well as your children, a dynasty trust may be right for you. Income-producing assets placed in the trust are subject to income tax, but the solution to this can be putting assets that do not produce income into it. Money can be distributed to beneficiaries, but the assets in the trust themselves are not included in their taxable estates either.
The decision to create a dynasty trust and the conditions of that trust will depend on a number of different factors, including the kind of legacy that you want to leave. For individuals with substantial taxable assets, it can be particularly helpful in removing those assets from the estate and avoiding a sizeable estate tax bill.