Whitepaper: Wealth Bomb

The dynasty trust is the mother of all planning techniques. Its benefits and potential harm require serious thought and likely some soul searching.

Because it enables the passage of assets across numerous generations 100% free of estate and git tax, the dynasty trust presents the ability to accumulate wealth unlike any other planning technique. It follows, then, that the dynasty trust requires thoughtfulness and introspection unlike any other, as well.

A dynasty trust can be an effective way to leverage the now $12.06 million per person estate tax exemption. However, the prospect of leaving tens or eventually even hundreds of millions of dollars to future generations you will never meet is daunting. Intimidating. Even borderline mind-blowing.

Planning for this technique will force you to consider anew your values and the  influence you wish to have on future generations. Not just your own mortality, but a sort of immortality.

Clearly these trusts have their share of pros and cons. Here I will try to share some of the most significant. The most basic reasons for dynasty trusts are enhanced asset appreciation and protection. The trusts’ very long durations makes them perfect for aggressive asset classes with commensurately long time horizons, and their growth will not be kneecapped by estate taxes as they pass across generations. Further, they sport creditor protection features that can protect your progeny’s net worth through divorces, lawsuits, bankruptcies and the other sundry joys of living.

They can be used to keep treasured possessions in the family, protecting ranchland or an art collection from the greed (or bad taste) of a future inheritor.

These trusts can even be set up to influence behavior, such as getting good grades, earning a degree, being employed and avoiding addictions.

These are called incentive trusts, and some families include a written essay to explain the logic, intentions and philosophies reflected by the trust’s provisions. One Chicago couple explained to their future beneficiaries that their trust was designed according to their wish that their descendants lead lives that are full and active, meet their potential, create more opportunities for others than they themselves have been given, and that they strive to provide for their families as if the trust did not exist.

That’s a lot of wisdom for a legal document. While other trusts are just as permanent, they are not all as thoughtful. Which brings us to some important considerations.

Relative Is a Relative Term 

While the growth potential of dynasty trusts may be eye-popping, your genetic linkage to its future beneficiaries may be infinitesimal. In 150 years the average person can expect to have 450 descendants. Over a longer time frame? Well, consider the strange case of Samuel Hinckley, forefather of presidents. Mr. Hinckley died in 1662. His descendants include two U.S. presidents, both named Bush. And a third, a cousin named Obama. Mr. Hinckley’s estate plan likely failed to anticipate this.

As time passes, and your assets and descendants multiply, your trust documents could  become antiquated.

Incentives that made sense generations ago might merely breed resentments in the future. Today’s consensus that equal distributions are fair distributions could, for instance, yield to a radically different understanding generations from now.

There are no easy answers to these questions. In fact, there are no answers, period.

So once you have poured your wisdom, philosophies and soul into your plan, work with your estate counsel to draft it with considerable flexibility. Consider giving future generations the ability to amend or decant it and contemplate assigning a low level of  fiduciary liability to future trustees. In other words, let your legacy breathe, and give it light.

And, of course, consider alternatives. The dynasty trust is not the only way to leave money to future generations. More traditional approaches to estate planning make outright distributions to children and grandchildren at designated ages. The rest is left to them. There are also many ways to leave your wealth to charities or foundations for the perpetual benefit of a wide range of causes. Come to think of it, these are just another group of people who you will never meet! And that might be OK, too.

We Are Here 

The currently high estate, gift and generation-skipping tax exemptions present a real – and perhaps fleeting¹ – planning opportunity, which means these issues could be on the table for you. We would welcome the opportunity to work with you and your family to  help you evaluate your options and talk through the relevant considerations!

 

1. They are scheduled to sunset on 1/1/26

 

About Fieldpoint Private

Headquartered in Greenwich, Connecticut, Fieldpoint Private (www.fieldpointprivate.com)  has more than $1 billion in bank assets and over $5 billion in total wealth management  assets. The firm provides personalized, custom wealth planning and private banking  services. Catering to successful individuals, families, entrepreneurs, businesses and  institutions, Fieldpoint Private offers a reciprocal combination of wealth management and strategy, family office, private banking and business banking services. Through a  comprehensive understanding of our clients’ individual financial circumstances we furnish  unbiased advice and personal service to free up the one resource that regardless of means no one can ever have enough of: time.

Fieldpoint Private was established in 2008 by 31 Founders with a specific vision and purpose.  These extraordinary leaders of industry and community recognized the opportunity to  create a financial firm totally attuned to unique individual circumstances. Our firm is built on  a philosophy of exclusive Membership and client-centricity. Working with a limited number of relationships gives every person the experience of belonging to an extremely selective  group. The result is a new breed of institution established on the basis of personalization, responsiveness and exclusivity, and an ensured commitment to impeccable service and consistently flawless execution. Our Member-oriented service approach offers a unique client experience custom crafted to each Member’s financial needs.

 

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Nicholas Bertha
President, Fieldpoint Private Trust

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