It is often the case that people want to provide not only for their immediate family, but for their grandchildren and beyond as well. This is possible through the creation of what is called a dynasty trust. People typically establish a dynasty trust with the idea that they can leave a legacy to benefit their posterity from one generation to the next. And, not only can dynasty trusts accomplish this, they also have certain tax advantages that can make them a worthwhile consideration in their own right.
Once funded, a dynasty trust remains outside of any one person’s estate, so assets in the trust avoid the estate tax. And, although dynasty trusts are subject to a generation skipping tax, this tax only applies to the amount used to fund the trust. In other words, any appreciation of trust funds is neither subject to the estate tax nor the generation skipping tax, and can thus go in its entirety to trust beneficiaries. Nevertheless, unless carefully drafted and funded with specific tax exemptions in mind, dynasty trusts can be depleted by taxes much quicker than anticipated. For this reason it is absolutely necessary to rely on the counsel of an experienced Arizona estate planning attorney when engaging in this type of complex planning.