Perpetual trusts or dynasty trusts, as they are sometimes known can be an important estate planning tool. Yet, you probably only need one if you have considerable wealth.
When you die, the people you leave assets to may need to pay tax on what they receive. A perpetual trust helps you avoid this. When you put property into one of these trusts, you take it out of your estate. It does not belong to you nor your beneficiaries. Therefore no transfer tax is payable.
Some states only allow these rules to apply for a short time. Yet, Colorado law allows a perpetual trust to last for 1,000 years. So you can pass money down tax-free through the next ten generations or so.
Once you put assets into a perpetual trust, you can no longer access it. It is what is known as an irrevocable trust. Once created, the assets belong to the trust, and it is up to the trustee to manage those assets for the beneficiaries’ benefits per the rules you set.
Trusts help you protect money
The IRS may not be the only people who want to get their hands on the money you leave behind. Using a trust helps you ensure money stays in the family. For example, if your daughter defaults on loans, the lenders may be able to access the funds you leave her in the bank. They cannot touch the money you put into a dynasty trust.
A perpetual trust is just one of several types of trust available, and you do not need to be wealthy to benefit from some of them. Understanding more about the different types of trusts can help you decide if you should include one in your estate plan.