A Dynasty Trust Can Save On Estate Taxes

December 4, 2017 04:13 PM
A dynasty trust can help the next generation avoid paying estate taxes because the assets aren’t owned by them.

Is a Dynasty Trust right for you? Everybody likes some control of their assets once they die. How much control you’d like to have can help determine if a trust is right for you. Do you care what your heirs do with the farm? Would it bother you if they sold it or sub-divided it? Are you concerned about what your children would spend your money on once you’re in the grave? Are your children already successful or independently wealthy? If so, a dynasty trust could be for you.

Farm Journal Legacy Project advisor Polly Dobbs of the Dobbs Legal group says a dynasty trust is a fancy way to say that your children don’t actually inherit your assets. Instead, they receive income from the trust without ever owning anything and that can be a very good thing for tax planning.

I had one lawyer put it this way,” she explained to the audience at the Executive Women in Agriculture conference last month in Chicago. “’No good can come from me owning anything. I can only screw it up. I can die young. I can get sued. I can just screw it up, so don't let me own anything. Keep it in that trust.’”

According to Dobbs, what is also nice about a trust is that you pick who controls the assets and you dictate continued management of the farm owned by that trust.

“So if it's going to be cash rented to someone, if it's going to be maintained or if it's OK to sell it, you say all that in your trust and your land stays in your trust, “ she explains. Dobbs also advises cash rent guidelines be outlined in the trust so there’s no argument among the heirs how much the land is worth.

In addition, a dynasty trust can help the next generation avoid paying estate taxes because the assets aren’t owned by them.  

If you are already creeping up towards $11.2 million, and oh by the way grandpa still living and dad still living and you're going to inherit millions of dollars-worth of farmland when they finally die in their late 90s, that's terrible planning,” she says adding that the assets in that scenario will be subject to the estate tax multiple times. “A dynasty trust can do a generation skip, and smart, rich people should ask their parents to do this for them.”

Back to news


Spell Check

Fort Benton, MT
12/5/2017 07:10 AM

  Taxes or no taxes, a dynamic way to bring about a dysfunctional family. One only needs to read "The Ultimate Gift" by Jim Stovall to decipher the overriding problem with to much wealth. I'd be very leery of a estate planning tool. Creating more money than one can handle. However, extremely good for the attorney, accountant, trustee and the banker.

Bill Wollesen
Lake View, IA
12/4/2017 06:39 PM

  Thank you!

Edgar, NE
12/4/2017 09:00 PM

  Then the next generation down the line pays all the estate tax after the land appreciates for another 75 years? Is that right?


Corn College TV Education Series


Get nearly 8 hours of educational video with Farm Journal's top agronomists. Produced in the field and neatly organized by topic, from spring prep to post-harvest. Order now!


Market Data provided by QTInfo.com
Brought to you by Beyer