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What is a California Dynasty Trust?
A dynasty trust is a type of trust that is created to pass wealth from generation to generation while avoiding taxes—forever—or at least as close to forever as possible.
Some states are more liberal than others when it comes to dynasty trust. In California, a dynasty trust can exist for 90 years. In other states – Alaska, Delaware, South Dakota, and several others – there is no time limit for dynasty trusts.
How Does It Work?
Let’s start with the traditional, general rule. Trusts were originally designed with a limited term of existence. At some point, by law the trust would terminate. This legal principle is referred to as the Rule Against Perpetuities. Many states have a RAP while some, as mentioned above, do no.
Dynasty trusts are used to avoid taxation and preserve and grow family wealth. Assets that are placed in trust—and the income derived from those assets – are subject to estate and gift tax only once when you transfer the assets to the dynasty trust.
What are the Benefits?
A dynasty trust can:
- Minimize tax impacts on gifts to your family or other beneficiaries.
- Maximize the value of assets available to your children, grandchildren and future generations.
- Provide asset protection from beneficiaries’ creditors, divorcing spouses, and even from the beneficiaries own behavior, for example, irresponsible spending, drug use, or other bad habits.
The lifetime gift and estate tax exemption is currently very high (in excess of $12 million per person at the time of this writing). The exemption is modified frequently thanks to changes in the law. The exemption will, in fact, be cut in half after January 1, 2026. A dynasty trust is a great vehicle to protect your family from the vagaries of the current political party in power.
Why Use a Dynasty Trust?
Dynasty trusts are a great option for a family that wishes to:
- Preserve its wealth for future generations.
- Avoid unnecessary taxation.
- Maximize gift growth through compound interest.
Where Can I Learn More?
Drafting and funding a dynasty trust is complex and requires the assistance of a California estate planning attorney. To get more information about dynasty trusts, call the Law Office of Jonathan Alexander at (949) 334-7823. Mr. Alexander has nearly 20 years of legal experience and can help you create an estate plan that protects you, your family, and the generations to come.
To learn more about Mr. Alexander, his firm, and his estate planning philosophy click here.
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