There is a big difference between the “probate avoidance trust” type of estate planning and what we call “dynasty trust” estate planning. While both of these approaches utilize a Florida revocable living trust; however, they direct the outcome of your estate plan in very different ways. Understanding the advantages of using a dynasty trust for a small estate (of say less than 5 million in the gross estate) can help you determine if this approach may be beneficial to your estate and your loved ones? Further, these approaches are not entirely “black and white” and can be designed to incorporate benefits from both approaches.
Dynasty Trust Advantages for a Smaller Florida Estate
Putting this in context, when I’m talking about smaller estate, we’re still thinking about an estate with enough assets to make the planning worthwhile. A modest estate of less than 1 million in gross assets might NOT be ideal for dynasty trust planning. However, an estate with 3-4 million and a mix of beneficiaries may benefit from dynasty trust planning.
While A Probate Avoidance Estate Plan Is Simply To Create A Means To Dispose Of The Estate Without Probate, A Dynasty Trust Estate Plan Seeks To Direct and Control the Distributions For A Longer Period of Time.
In my experience, the vast majority of revocable trust planning provides (in the Trust itself) that upon the death of the last surviving “Trustmaker”, the estate shall simply be distributed to the designated beneficiaries “outright” and free of trust. This type of trust planning is primarily for avoiding probate in Florida. The one exception may be if there are underage beneficiaries, in which event, the assets may be held in trust for a period of time or until the beneficiaries attain a certain age. Historically, the idea of a long term or “dynasty trust” has been thought to be reserved for massive estates (i.e. the Kennedys). While there is some merit to allowing a simple plan for a medium size or smaller estates, there is an option to keep assets in Trust for certain beneficiaries over a set duration or even perhaps for the life of the beneficiary. Certain state’s laws even encourage this by allowing trusts to remain “unvested” for substantial lengths of time, as is the case in Florida.
A Popular Misconception Is That Dynasty Trust Estate Planning Is Only Beneficial For Very Large Estates, And Yet There Are Benefits For Average Estates To Consider.
It is a common belief, even among some attorneys, that smaller and medium sized estates of say, less than a million in assets may not warrant dynasty trust protection. However, my opinion is that this belief may be short sighted. There is an important role for limited dynasty trust protection if, for example, an individual wishes to reserve a portion of the estate for grandchildren. Another good reason to include dynasty trust protection is for the asset protection that beneficiaries may receive by keeping assets in a family trust.
A Dynasty Trust Estate Plan May A Strict Plan Or Be Modified To Allow Additional Flexibility For The Trustee And Beneficiaries.
A strict dynasty trust plan would require that assets remain in trust for the beneficiaries indefinitely and when those beneficiaries pass away, those same remaining assets would be held for future generations. A stricter plan is most ideal for large estates with substantial assets, in my opinion, because it places future generations on somewhat equal footing with current generations in a way to prevent the current generation from squandering the estate.
For smaller estates; however, it may be beneficial for the immediate beneficiaries to have more flexibility due to the stronger likelihood that the trust assets may diminish and the administration of the trust may become uneconomical. To create flexibility, for example, a right to withdraw trust principal at certain designated ages may be included or even a right to outright distribution of assets may be specified. In this way, future generations may be put on notice that the current beneficiaries have wide discretion to withdraw trust assets, and yet the other dynasty trust benefits discussed above may remain in force.
As I always, say, these cases are very fact specific and should be reviewed with your favorite seasoned estate planning attorney prior to pursuing any strategy.
Steve Gibbs, Esq.
This is an updated version of an original post dated March 24, 2016.