This Secret Strategy Helps the Super Rich Protect Their Wealth for 10 Generations

Drazen_ / iStock/Getty Images

Drazen_ / iStock/Getty Images

You may have heard about different types of trusts that wealthy people use to pass down money.

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One secret strategy that super rich people use to protect their wealth for generations is a dynasty trust. Let’s explore the idea of a dynasty trust and why some of the wealthiest have employed this secret tool.

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What’s a Dynasty Trust?

These trusts are designed to last through many generations and protect wealth. The primary purpose of these trusts is to avoid taxes as much as possible when passing down assets to beneficiaries and to create an income source beyond just one generation.

“A dynasty trust is designed to last a long time, keeping your wealth from getting nibbled away by estate taxes or snatched up by creditors every time it moves to the next generation,” said Shawn Carpenter, CEO of StockAlarm.

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Here are some highlights of a dynasty trust:

  • The grantor who creates this trust and transfers assets often uses their lifetime gift tax exemption and GSTT (Generation-Skipping Transfer Tax) exemption. The current law allows individuals to contribute up to $13.61 million as of 2024 for this gift exemption.

  • It’s crucial to mention that this has to be created as an irrevocable trust. The grantor and beneficiary can’t have any control. The grantor decides how the beneficiaries will receive income from the trust.

  • The grantor can set up strict rules for managing and distributing the funds. However, when the trust is funded, the grantor gives up control over its assets. Future beneficiaries also don’t have control over the assets or the terms of the agreement.

  • The grantor decides on the trustee (often a bank), who will manage the trust and distribute the assets based on the outlined terms. The document with the outline terms states specific rules, conditions, and distributions.

The dynasty trust becomes the owner of the assets, so they are not included in the grantor’s estate when they pass. This is a basic summary, and if you’re seeking additional information, it’s critical that you speak with a tax specialist.

Why Do the Super Rich Use a Dynasty Trust?

Here are the main reasons why the rich will utilize this secret strategy.

Minimize Estate Taxes

“One of the primary benefits of a dynasty trust is its ability to minimize estate taxes,” said Samuel Deane, financial advisor and founder of Deane Wealth Management. “This is especially important now that the estate tax thresholds may be lowered by half in the upcoming years.”

As you may have guessed, this complex trust will help with limiting taxes for future generations when they inherit the assets.

“Nobody likes seeing their hard-earned wealth get slashed by taxes,” said Carpenter. “With a dynasty trust, you’re putting a shield around your assets. This way, when your wealth jumps from generation to generation, it doesn’t trigger a tax event that could eat up a significant chunk of the pie.”

You Ensure Your Wealth Isn’t Squandered

“For people who have significant wealth, dynasty trusts can be structured to last for many generations,” said Deane. “This allows wealthy families to maintain control over how their assets are distributed and used by future generations, ensuring that the wealth supports the family over the long term rather than being squandered.”

Wealthy people may not have control over how future generations will behave, so they do their best to protect their wealth so that the money isn’t spent frivolously.

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You Protect Your Wealth

“Dynasty trusts are like having a financial moat around your castle,” said Carpenter. “If life throws curveballs (think lawsuits or creditors), your family’s wealth stays protected inside the trust, out of reach from these financial predators.”

Since life can be unpredictable, wealthy people want to be confident that their assets will be safe in the future.

You Can Set the Terms

“One of the coolest things about setting up a dynasty trust is that you get to call the shots on how the wealth is used down the line,” said Carpenter. “Want to make sure your descendants use the money for education, start-ups, or charitable work? You can lay it all out, guiding future generations even when you’re not around to advise Sunday dinner.”

The trust’s creator can set specific terms for how and when the assets are distributed to beneficiaries in the future. Stipulations can be based on age, marriage, achievements, education, or other milestones.

You Have Enough Flexibility

“Although dynasty trusts are irrevocable, meaning they cannot be altered once they have been established, they can be designed with a certain degree of flexibility to adapt to family circumstances or the trust’s assets,” said Deane.

Rich people appreciate the flexibility that can be included with these trusts since they can never predict the future.

Closing Thoughts

“This isn’t a DIY project or something you want to Google your way through,” said Carpenter. “Setting up a dynasty trust is complex stuff. Bring in a lawyer and financial advisor who knows the ins and outs.”

As always, you want to ensure that you have professional guidance when deciding how to pass down wealth through the generations.

“Remember, it’s not just about the wealth but the legacy and impact you want to leave behind. A little planning today can make a difference for your family’s tomorrow,” said Carpenter.

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This article originally appeared on This Secret Strategy Helps the Super Rich Protect Their Wealth for 10 Generations

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