to have sufficient mental capacity to sign. A dynasty trust is normally created in one of two situations: First, when clients are creating an estate plan to control their assets and decisions at death, a dynasty trust can be created to receive gifts from parents. The trust largely stays dormant until funded with assets from the parents’ ownership, family trust, or even insurance. The dynasty trust can also be used to receive gifts from other family members. A grandparent or aunt who wants to give to a child can instead give to a dynasty trust created by the parents. Centralising the control minimises the expense and complication of future administration. The other situation occurs when gifts will be made to a child now. This often occurs in conjunction when planning to transfer family wealth or a family business, or even when planning to avoid estate taxes. The dynasty trust is used as a gift recipient to make final gifts to the trust but prevent a loss of control. Often the child is not a trustee until reaching a certain age, preventing the child from making irresponsible or rash decisions. The dynasty trust trustee maintains the assets and directs that they be used for the child’s benefit without threatening the family’s wealth or business plan. MY LEGAL LIFE 27 make longstanding documents like dynasty trusts effective by influencing the behavior of children. Some options include requiring the trustee to hire skilled attorneys and CPAs as advisors, including a professional co-trustee to serve alongside the child, or even requiring permission to withdraw assets from a third party. How can the insight of an experienced estate planning attorney prove beneficial in the establishment or managing of a dynasty trust? Dynasty trusts are designed for multigenerational tax avoidance by restricting direct ownership by a child. But this ownership structure has significant side-effects that make them effective and useful in many more situations. It is important for an estate planning attorney to intimately understand how a dynasty trust works and the key details and exceptions so they can be safely applied in as many situations as possible. One example – a child with a severe drug habit should not receive direct gifts. A Are there any notable legal pitfalls relating to dynasty trusts? How can these best be prepared for and overcome? The most significant pitfall is in a child or other beneficiary understanding the purpose and benefits of the dynasty trust. Children need to understand the trust’s benefits and proper operation so they do not accidentally defund the trust, effectively voiding all the protections. Significant effort should be made to At the core, each trustee should be a trustworthy and intelligent adult.
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