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For a select few families, a dynasty trust is just the ticket

There is likely a debate at the ready in response to an estate planning professional’s recent comment that “a lot of clients want to take advantage of this new law.”

The referenced enactment concededly applies only to a notably small demographic, which makes its broad utility arguable. What the commentator is referring to is legislation passed early in the Trump administration that enables the truly uber-wealthy to safely park assets in so-called “dynasty trusts” that sidestep payment of estate and gift taxes.

A snapshot profile of individuals who can take advantage of the new law readily indicates that “a lot of clients” actually translates to “a small fraction of estate planners.”

Here’s why: dynasty trusts make the most sense for planners who can use the recently bumped tax-free family threshold of approximately $22 million (approximately doubled from its previous cap) to set aside an extra $11 million in a trust that keeps assets intact and safe for future generations.

Truly, it’s not for everyone. In fact, reportedly only about 2,000 American families are subject to the newly revised estate limits.

That demographic commands outsized clout, though. Small as it is, its constituents collectively control a sizable percentage of national wealth. And planning professionals note that, given the ticked-up double amount on exemptions, some members of that distinct group are closely fixated on the opportunity to move extra money out of their estates into dynasty trusts.

And haste is a motivating factor. The doubled family exemption is only a short-term opportunity, being set to expire in 2025. And if Democrats are soon able to increase their political muscle in Congress, the open window for establishing dynasty trusts in an increased amount could close in a hurry.

There is of course some complexity attached to an estate planning vehicle reserved for the truly wealthy and with the central aim of tax avoidance. An established estate planning attorney with a deep background in accounting and financial matters can answer questions and offer guidance concerning the basics of a dynasty trust.

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