Like granite itself, New Hampshire allows for trusts that can last in perpetuity, benefiting a grantor’s descendants for generation after generation. These trusts are designed to provide for a continuing transfer of family wealth in a tax-advantaged environment and can provide an enduring financial foundation as a family grows into the future.
The primary difference between a dynasty trust and other irrevocable trusts is that a dynasty trust does not have an expiration date; i.e., it is not compelled to terminate by operation of law. In New Hampshire, it is possible to create a dynasty trust because New Hampshire, in 2004, created an exemption to the common law “rule against perpetuities.” The rule against perpetuities, as it has normally applied to trusts – and as it still does in most states – limits the duration of a trust to no longer than a life in existence at the time a trust is created (a measuring life), plus twenty-one years. Constrained by this rule, a trust might last around 100 years, give or take, assuming that the measuring life is an infant at the trust’s creation and lives for 80 years or so. While this is certainly a long time, it will likely span no more than a few generations.
Beyond the ability to benefit ensuing generations without a defined termination point, dynasty trust assets (while in trust) can avoid being subject to a variety of taxes often applicable in generational wealth transfer, namely estate tax, gift tax and generation skipping tax. In addition to these benefits, in New Hampshire, the trust assets can grow over time, free from a state income tax.
Dynasty trusts also extend the duration of the asset protection features of other irrevocable trusts. Since the trust is the owner of the assets, the assets are shielded from the creditors of the individual beneficiaries for as long as the trust lasts. As a dynasty trust can theoretically last forever, that is significant multi-generational protection. A dynasty trust can also be used in conjunction with a “purpose” trust to hold a particular asset like a family home or business for the enjoyment of future generations without a specific beneficiary (New Hampshire is one of only a few states to allow the creation of “purpose” trusts).
A dynasty trust is irrevocable, from which it gains many of its benefits, but which also creates less flexibility as access to, and use of, the trust assets will be subject to the terms of the trust. Moreover, it can be difficult to anticipate what the needs of distant descendants might be and adequately address them generations earlier. However, proper forethought and drafting can go a long way to mitigate these potential downsides and foster a dynasty trust’s benefits.
If you are interested in learning more about dynasty trusts, please let us know. We would be happy to discuss the topic in greater detail.
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