Sunday, July 31, 2011
More taxpayers are taking an interest in dynasty trusts thanks to the high lifetime gift and estate tax exemptions available until the end of next year. Delaware, New Jersey, and Pennsylvania are just a few of the several states that allow dynasty trusts, or trusts that never expire.
Delaware dynasty trusts offer more flexibility in asset investment options and more protection from creditors during civil litigation. Typically, out of state taxpayers who set up Delaware trusts do not pay state income or capital gains taxes on the trust’s accumulations. Out of state taxpayers only pay these taxes on distributions from the trust. Other states tax out of state taxpayers on the undistributed income and gains of dynasty trusts. Taxpayers must still pay federal taxes on the trust’s distributed and undistributed investment gains and income. Set up costs for a dynasty trust can range anywhere from $3,000 to over $30,000.
For more information on dynasty trusts see Elizabeth Ody, Dynasty Trusts Let U.S. Wealthy Duck Estate, Gift Taxes Forever, Bloomberg, Jul. 28, 2011.
Special thanks to Jim Hillhouse (WealthCounsel) and Peter Parlapiano (MBA/M.S. Personal Financial Planning, Lubbock, Texas)