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Advanced planning

How a dynasty trust works: an illustrated example

An irrevocable or dynasty trust can provide a lasting framework for the wealth you leave to children and grandchildren. The example below compares a dynasty trust with assets that are taxed in a child’s estate.

Benefits depend on trust terms, applicable law, tax planning, and administration. These trusts involve giving up important rights over transferred assets.

Hypothetical example · Dynasty trust

A considered legacy, with room for generations to benefit.

Imagine $6 million held for your children and grandchildren in a properly designed dynasty trust.

Diagram: you place 6 million dollars in a dynasty trust for children and grandchildren; if those assets were instead taxed in a child’s estate at 40 percent, the tax would be 2.4 million dollars. Youthe grantor Dynasty trustirrevocable, long-term Familychildren · grandchildren $6M in trustwith GST tax planning Held on the terms you set In a child’s estate: $2.4M taxin this example, at a 40% rate May preserve morefor later generations Hypothetical illustration, not a client result. Assumptions are listed below the example.
  1. Step 1

    Create the trust

    You place assets in an irrevocable trust for your children and grandchildren, with appropriate generation-skipping transfer tax planning.

  2. Step 2

    Your terms guide it

    The trust’s terms reflect your priorities and guide future distributions.

  3. Step 3

    The comparison

    If those $6 million of assets were instead included in a child’s taxable estate and were fully subject to a 40% estate-tax rate, the tax attributable to them would be $2.4 million.

  4. Step 4

    Later generations

    A trust designed to keep those assets outside the child’s taxable estate may preserve more wealth for later generations.

Two requirementsEstate-tax exclusion and GST-tax exemption are separate requirements.
Your termsYou decide how and when family members can receive distributions, within applicable law.
Certain protectionsWith appropriate design, protection against certain creditor claims; no trust protects against every claim.

Hypothetical comparison, not a client result. Assumes the full $6 million would otherwise be taxed at 40%, without available exemptions or deductions. Actual savings may be lower or zero. Estate-tax exclusion and GST-tax exemption are separate requirements. Trust terms, beneficiary powers, governing law, duration, expenses, and income and capital-gains taxes affect the outcome.

This guide is general information about California and federal law, not legal or tax advice for your situation. Reading it does not create an attorney-client relationship.

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