Dynasty trusts: preserving

family assets for future

generations

Affluent individuals and families who wish to safeguard their wealth and create a lasting
legacy for loved ones have many strategic estate and tax planning decisions to make. Gift
taxes, estate taxes and generation skipping transfer taxes can dramatically decrease the
inheritance left to your children, grandchildren and great grandchildren.

Without careful preparations, the creditors, matrimonial claims and

family business or other valued poor decisions of future beneficiaries.
assets may need to be sold to pay The Tax Cuts and Jobs Act This will help ensure trust assets are
the tax bill when the wealth transfer increased the estate tax invested for the optimum benefit of
occurs. Compounded over the course exemption to $12.06 million your children, grandchildren and all
of several generations, these various (2022—indexed for inflation) future descendents.
transfer taxes may threaten the
per person. This means that
economic opportunity and financial
an individual can pass up to Hypothetical example
security you wish to create for the
people you care most about. $12.06 million worth of assets Look at how the transfer taxes
estate and gift tax free, and a assessed to each generation may
whittle away a family legacy over
Consider the benefits of a married couple can pass up to
time. Then compare that with
dynasty trust $24.12 million estate and gift the potential long-term growth of
If you wish to protect and preserve tax free in 2022. family wealth preserved for future
your wealth for multiple generations, generations in a dynasty trust.
you may want to place the assets The following illustration shows a
you intend to share with heirs in and distribute assets no later than married couple currently gifting $12
a dynasty trust. This strategy has 21 years after the death of the last million each to compare the possible
historically been used by wealthy surviving individual who is alive at the outcomes produced by two planning
families to maintain their wealth time the trust was created. However, scenarios that are identical, except
through multiple generations. there are several jurisdictions that one uses a dynasty trust, thereby
have abolished the rule against preventing the harmful effect of
A dynasty trust can be designed perpetuities—and if formed in one of transfer taxes.
to last potentially for multiple those states, a dynasty trust can last
generations, if established in a for multiple generations.
jurisdiction that does not have
statutory restrictions on how long In addition to mitigating the impact
trusts may last. Some states have transfer taxes have on your family’s
a “rule against perpetuities,” which financial well-being, a dynasty trust
means the trust must terminate can help shield your wealth from

Investment and insurance products offered through RBC Wealth Management are not insured by the FDIC or any other
federal government agency, are not deposits or other obligations of, or guaranteed by, a bank or any bank affiliate, and
are subject to investment risks, including possible loss of the principal amount invested.
 Page 2 of 2 Dynasty trusts: preserving family assets for future generations, continued

qualify for the gifting and generation immediate ability to use and enjoy
Without a dynasty trust at 4% growth
skipping transfer tax exemption—and the gifted property.
Generation Transfer Taxes Net the death proceeds payable to the
1 Grantor $24M $0 $24M • S
 trict adherence to procedural
trust pass outside of the grantor’s
2 Children $53M $21M $32M details is essential — Properly
estate, as well as the estates of the
3 Grandchildren $70M $28M $42M administering a trust that is drafted
future descendents covered by the
4 Great
$92M $37M $55M
to qualify for annual exclusion gifts
grandchildren dynasty trust.
is key to the success of any trust
Because income generated within that includes life insurance. Failure
a dynasty trust is more heavily of a trustee to inform beneficiaries
With a dynasty trust at 4% growth
taxed, it could be more beneficial and to properly time and document
Generation Transfer Taxes Net
to place assets in the trust that are Crummey notices can be a costly
1 Grantor $24M $0 $24M
non-income generating such as life mistake. Naming a professional
2 Children $53M $0 $53M
3 Grandchildren $116M $0 $116M insurance, growth stocks, tax-exempt trustee to administer a dynasty
4 Great bonds, or real estate. trust is recommended where the
$254M $0 $254M
grandchildren trust contains more complexities.

Notes:
Important considerations
• Assumes grantor generation is a • T
 he trust must be irrevocable — Explore the opportunity
married couple using a $23 million of To avoid estate inclusion and Your wealth represents a lifetime of
their combined estate tax exemption
potential taxation, you must use an hard work and smart investing. It also
(adjusted annually for inflation).
• Each generation assumed to be 20 irrevocable structure. Once assets represents the courageous decisions,
years with trust assets growing at a are placed in a dynasty trust, the fiscal responsibility and personal
compounded rate of 4%. grantor does not have the right to sacrifice you have made. It may even
• Assumes a $24 million gift. revoke or amend the trust. represent a legacy from your parents,
• Results rounded to nearest $1 million.
grandparents or other loved ones.
• Assumes future generations have • T
 rustee responsibilities are
fully utilized their own exemptions. significant and long term — That means your wealth may
• Estate tax rate assumed to remain A professional trustee is represent more than money to you.
at 40%.
• Does not include impact of state or
recommended because trustees It may honor your family heritage,
local estate tax. are given discretionary powers reflect your personal values and
to distribute income or principal serve your hopes for the future.
Assets of choice to beneficiaries over multiple Which is why it is so important to
To preserve and build wealth for generations. Use of a professional take full advantage of this unique and
future generations, it is prudent to trustee to administer a trust that timely opportunity now.
fund a dynasty trust with assets or stretches for multiple generations
Call your RBC Wealth Management
investments that offer high potential helps promote continuity and
financial advisor today to discuss
appreciation and little or no transfer consistency in managing the trust
whether a dynasty trust is a practical
tax value today. For these reasons, in accord with the trust provisions.
solution for your wealth management
life insurance may be an ideal • G
 eneration skipping taxes and and legacy planning goals. In
product to consider. gift taxes may apply — When addition to helping you choose
With life insurance, the death designing a dynasty trust, it may appropriate assets to fund the trust—
benefit can provide great leverage. be beneficial to draft the trust so which may include purchasing life
Additionally some life insurance that future gifts to the trust qualify insurance—your financial advisor
products offer contractual for the annual gift tax exclusion can recommend a well-qualified
guarantees, which means the policy ($16,000 per donee). To qualify for professional trustee and simplify your
cannot lapse or premiums will remain this exclusion, the trust must be experience by collaborating with your
constant. Furthermore, gifts to the drafted so that it gives recipients estate attorney and tax advisor.
trust to pay the premiums may a “present interest,” which is an

Crummey notices: Notifications to beneficiaries of irrevocable trusts that they have the right to demand a
disbursement after a gift is made to the trust.

Increased the estate tax exemption to $12.06 million (2022) per person.
Trust services are provided by third parties. Neither RBC Wealth Management nor its Financial Advisors are able to serve as trustee. RBC Wealth Management does not
provide tax or legal advice. All decisions regarding the tax or legal implications of your investments should be made in connection with your independent tax or legal advisor.
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