living trust 91024In 2017, NBA team owner Gail Miller made headlines when she announced that she was effectively no longer the owner of the Utah Jazz or the Vivint Smart Home Arena. These assets, she said, were being placed into a family trust, therefore raising interest in an estate planning tool previously known only to the very wealthy­–the dynasty trust.

Dynasty Trusts Explained

A dynasty trust (also called a “legacy trust”) is a special irrevocable trust that is intended to survive for many generations. The beneficiaries may receive limited payments from the trust, but asset ownership remains with the trust as long as the trust is in effect. In some states, a legal rule known as the Rule Against Perpetuities limits how long a dynasty trust can last.

The rule against perpetuities is a common law concept that still applies in most states. It generally provides that a trust may not last longer than 21 years after the death of the last potential beneficiary to die who was living at the time the trust was established.

California has enacted the Uniform Statutory Rule Against Perpetuities (USRAP), which provides that a trust may last at least 90 years before the common law rule is applied. In fact, this 90-year “wait and see” approach in USRAP now applies in most other states, too.

Advantages and Disadvantages

Wealthy families often use dynasty trusts as a way of keeping the money “in the family” for many generations. Rather than distribute assets over the life of a beneficiary, dynasty trusts consolidate the ownership and management of family wealth. The design of these trusts makes them exempt from estate taxes and the generation-skipping transfer tax, at least under current laws, so that wealth has a better ability to grow over time, rather than having as much as a 40-50% haircut at the death of each generation.

However, these benefits also come at the expense of other advantages. For example, since dynasty trusts are irrevocable and rely on a complex interplay of tax rules and state law; changes to them are much more difficult, or even potentially impossible as a practical matter, compared to non-dynasty trusts. Because changes are so difficult (or impossible), the design of a dynasty trust needs to anticipate any and all changes in family structure (e.g. a divorce, a child’s adoption) and assets (e.g. stock valuation, land appraisals), decades before any such changes occur.

Is a Dynasty Trust Right for Your Family?

In the past, these kinds of trusts were usually only used by very wealthy families whose fortunes would be subject to large estate taxes. However, dynasty trusts are powerful tools for “regular” families today who which to protect estates not only from taxes, but also from divorces, creditors or the ill-advised spending habits of beneficiaries. To learn more about dynasty trusts other estate planning strategies, call our office today.

Dedicated to empowering your family, building your wealth and defining your legacy,

Marc Garlett 91024

addiction 91024Substance addiction is by no means rare, impacting as many as one in seven Americans. Because of its prevalence, navigating a loved one’s addiction is a relatively common topic in everyday life. But you should also consider it when working on your estate planning. Whether the addiction is alcoholism, drug abuse, or behavioral like gambling, we all want our loved ones to experience a successful recovery.  And a properly created estate plan can help achieve just that.

The idea that money from a trust could end up fueling addictive behaviors can be particularly troubling. Luckily, it’s possible to frame your estate planning efforts in such a way that you’ll ensure your wealth has only a positive impact on your loved one during their difficult moments.

Funding for treatment

One of the ways your trust can have a positive influence on your loved one’s life is by helping fund their addiction treatment. If a loved one is already struggling with addiction issues, you can explicitly designate your trust funds for use in his or her voluntary recovery efforts. In extreme cases where an intervention of some sort is required to keep the family member safe, you can provide your trustee with guidance to help other family members with the beneficiary’s best interest by encouraging involuntary treatment until the problem is stabilized and the loved one begins recovery.

Incentive trusts

Incentive clauses can be included in your estate planning to help improve the behavior of the person in question. For example, the loved one who has an addiction can be required to maintain steady employment or voluntarily seek treatment in order to obtain additional benefits of the trust (such as money for a vacation or new car). Although it might seem controlling, this type of incentive structure can also help with treatment and recovery by giving a loved one something to work towards. This approach is probably best paired with funding for treatment (discussed above), so there are resources to help with treatment and then benefits that can help to motivate a recovery.

Lifetime discretionary trusts

Giving your heirs their inheritance as a lump sum could end up enabling addiction or make successful treatment more difficult. Luckily, there’s a better way.  Lifetime discretionary trusts provide structure for an heir’s inheritance. If someone in your life does (or might eventually) struggle with addiction, you can rest easy knowing the inheritance you leave can’t be accessed early or make harmful addiction problem even worse.

Of course, you want to balance this lifetime protection of the money with the ability of your loved one to actually obtain money from the trust. That’s where the critical consideration of who to appoint as a trustee comes in. Your trustee will have the discretion to give money directly to your beneficiary or pay on your loved one’s behalf (such as a payment directly to an inpatient treatment center or payment of an insurance premium). When dealing with addiction, your trustee will need to have a firm grasp of what appropriate usage of the trust’s funds looks like. Appointing a trustee is always an important task, but it’s made even more significant when that person will be responsible for keeping potentially harmful sums of money out of the addicted person’s hands.

Navigating a loved one’s addiction is more than enough stress already without having to worry about further enablement through assets contained in your trust. But you can take that extra burden off your shoulders by building an estate plan that positively impacts your loved one and doesn’t contribute to the problem at hand. That way, you can go back to focusing your efforts on the solution. Call us today if you’re in this situation and would like some help.

Dedicated to empowering your family, growing your wealth and securing your legacy,

Marc Garlett 91024