Albuquerque Dynasty Trust Lawyer

Families that want to ensure they can maintain generational wealth for decades — or even centuries — can establish a dynasty trust. Any assets transferred to the trust can use the remaining gift/estate tax exemption held by the trust creator (called a grantor).

The grantor can also decide to allocate some of their generation-skipping transfer tax exemption to the trust, which would reduce taxes owed by grandchildren and other younger beneficiaries.

A dynasty trust can even be used to donate to charitable causes, albeit potentially without the same level of tax advantages compared to a dedicated charitable trust.

Creating a dynasty trust involves making some complex decisions, and it will require many legal and tax considerations. Accordingly, it is recommended to work with an Albuquerque dynasty trust attorney to set up the trust using the most advantageous structure possible with respect to your family’s unique financial situation and goals.

Start the process of establishing generational wealth and a lasting legacy when you call New Mexico Financial & Family Law today. Call 505-503-1637 or contact us online to schedule a no-obligation case review.

How Can an Albuquerque Dynasty Trust Attorney Help Me?

Since forming a dynasty trust involves assets of high value, families can feel better prepared and more confident about the future of their trust when they work with a dynasty trust attorney. Because dynasty trusts are intended to last for several generations, it’s important to “get it right the first time” when forming the trust, determining its rules, and making all the necessary administrative preparations.

Dynasty trusts usually start out as irrevocable. And, if they do begin as a revocable family trust, they are still going to become irrevocable after the death of the grantor.

Accordingly, grantors will want to be careful in how they set up the trust. Their decisions regarding what assets to include, what rules to set, how to arrange distributions for beneficiaries, and other key considerations will have a deeper impact on a trust that is intended to last for many generations.

An Albuquerque dynasty trust attorney can work closely with your family to determine the best strategy for forming your trust. You have many options at your disposal, so it helps to understand all your available choices along with the pros and cons of each.

By working with an experienced Albuquerque dynasty trust lawyer, you can get help answering questions like the following:

• In what state do you want to form the dynasty trust? While you could create a long-lasting dynasty trust in New Mexico, it won’t be able to persist as long as a dynasty trust created in another state like South Dakota, Nevada, or New Hampshire.
• How long do you expect the trust to last? This duration can be quantified in terms of years or lifetimes.
• What assets do you want to put in the trust? Are you or your beneficiaries willing to pay taxes on income generated from assets, or would you rather fund the trust with assets that don’t generate significant income?
• Who do you want to name as beneficiaries of the trust? Are you inclined to list only beneficiaries who are currently alive? Or would you want to leave language in the trust for unborn beneficiaries, such as any possible future grandchildren or great-grandchildren?
• Who do you want to name as trustee? Are you comfortable naming a professional services provider, such as a bank, as trustee since the dynasty trust is designed to last for multiple lifetimes?
• Do you intend to allocate some of your generation-skipping transfer tax exemption to the trust? If so, how much would you like to designate? Note that the amount of exemption determines the rate of taxes for any distributions taken by grandchildren (or anyone 37.5 years younger than the grantor).
• Do you want to designate the dynasty trust as a grantor trust during your lifetime? This allows you to report any income as your own, which can result in lower taxes in many situations.
• Are you going to include any real property, a business, or other non-liquid assets in the trust? If so, do you want to provide instructions for the trustee to keep the property intact at all costs? Or would you rather the property be sold in the event of an emergency (or another compelling reason to do so)?
• Do you want to give powers of appointment to your beneficiaries so they can request changes or use of trustee discretion in the future?
• Are you going to assign a trust protector to monitor the trust’s management and ensure beneficiaries get distributions as intended?
• Do you anticipate any legal costs for the trust, such as defending against creditor claims?
• Do you want to combine the trust with forms of asset protection, such as by making it a discretionary and/or spendthrift trust?

Consider how you might answer questions like these in advance of your meeting with an Albuquerque dynasty trust lawyer. You don’t have to know all the answers for certain, and it’s natural to change your strategy after conferring with an experienced professional, but it can help to begin “turning the wheels” and considering what your future trust may look like.

You should also prepare an outline of your goals and the assets you think would be a good fit for the trust.

What Is a Dynasty Trust, and How Does It Work?

A dynasty trust is a special type of family trust that is intended to last for multiple generations, sometimes indefinitely, depending on the laws of the state where the trust was formed.

All trusts have three main parties to be aware of:

• A grantor (or grantors) who form the trust, funding it with their own assets
• A trustee who assumes control of the trust, managing its asset portfolio while ensuring that beneficiaries get their distributions
• Beneficiaries, who receive distributions (e.g., cash payments) from the trust

Finding a State With a Relaxed (Or Non-Existent) Rule Against Perpetuities Is Necessary for Forming a True Dynasty Trust

One key factor to be aware of is that many states have a “rule against perpetuities.” These rules require a trust to terminate within a reasonable amount of time, such as a certain number of years after the death of an individual who was alive when the trust was created.

New Mexico has one such rule against perpetuities (NM Stat § 45-2-901), which states:

A nonvested property interest is invalid unless:

1. when the interest is created, it is certain to vest or terminate no later than twenty-one years after the death of an individual then alive; or
2. the interest either vests or terminates within ninety years after its creation.

In other words, if a piece of property is not transferred out of a trust after these two time limits, the trust arrangement becomes void. When that happens, the remainder property may be distributed to next-of-kin of any surviving named beneficiaries — or it could even be absorbed by the state, in some cases.

However, many states have made considerable extensions to their rules against perpetuities. Other states have all but completely done away with their rule against perpetuities, essentially allowing a trust to last forever.

One key decision, then, when forming a dynasty trust is to decide what state you want to form it in. It may be the case that New Mexico’s laws are compatible with your plans, but otherwise, you will want to consider other states that allow for longer periods than our own state.

Nevada, for example, allows for trusts to last for a period of 365 years. In Wyoming, the trust can last for 1,000 years!

Many states effectively allow the trust to persist indefinitely. States that allow for perpetual trusts include: South Dakota, New Hampshire, and Illinois.

Ohio and Alaska also allow for a perpetual trust, provided that beneficiaries do not have the right to exercise powers of appointment. If they do, then the trust can still last for up to 1,000 years.

Speak with an Albuquerque trust attorney to learn more about how you can take advantage of favorable laws in a particular state in order to best achieve your goals.

Combining Asset Protections With a Dynasty Trust

Another advantage that could be provided through a dynasty trust is asset protection. With the right strategy, the trust could shield all of its assets from creditor claims. In certain states, like South Dakota and Nevada, the assets may even be shielded from claims related to a divorce or child support.

To obtain these protections, the trustee usually has to be given broad discretionary powers. That means that they have the ability to deny distributions, at their discretion, or to only make distributions when they feel it is appropriate.

By giving the trustee this power, the beneficiaries effectively have no genuine “interest” in the trust, meaning that the assets are not theirs to claim. Therefore, creditors will not be able to access the contents of the trust — at least not until they are distributed to the beneficiary.

Spendthrift clauses can also be added to a dynasty trust to prevent beneficiaries from transferring their interest in advance. These provisions add further asset protections.

They can also offer the added benefit of forcing the beneficiary to be responsible with their money. If the beneficiary is unable to use their trust interest as collateral for a loan, for example, then they are restricted to only benefiting from the trust when a scheduled distribution occurs.

How Are Distributions to Beneficiaries Handled With an Albuquerque Dynasty Trust?

A dynasty trust can be structured any way the grantor wishes, within legal bounds.

In one common arrangement, the grantor will set aside a certain amount for each relative (i.e., a beneficiary) who is expected to receive a distribution. The relative then receives a few installments from the trust during their lifetime.

The remainder of the trust is then left for future generations.

However, a dynasty trust can be structured any way you like. You can have the trust make equal payments to all beneficiaries until it is completely exhausted, making it last only as long as its investment proceeds can keep up with the distributions.

Alternatively, you can have a beneficiary receive one lump sum when they reach an age of maturity, such as 25, which allows them to make their own investments and sets them up for a comfortable lifestyle.

Dynasty trusts can even be given certain rules, such as a beneficiary can only receive a distribution when they graduate college with a four-year degree. Beneficiaries may also receive an extra distribution upon their marriage or the birth of their first child, for example.

Consider how you might want your trust to benefit future generations, along with what trust rules might benefit those goals. Your Albuquerque dynasty trust attorney can then help you determine the best trust structure and guiding rules to set to maximize the chances that your goals will be met.

Note, too, that the trust may be able to declare that someone is a beneficiary before they have even been born, as long as they are specifically referred to by their role. For example, the trust could name “all progeny of my daughter Sara, and subsequent generations born to her lineage” as a future beneficiary.

How Are Dynasty Trusts Taxed?

A grantor can designate trust income as their own during their lifetime, which is known as a grantor trust arrangement.

If they elect not to do this, the dynasty trust receives a non-grantor designation. Non-grantor trusts must track their own income and pay appropriate taxes on it, filing a separate trust return each year (IRS form 1041).

Any withdrawals from the trust are deducted from its yearly income, but these distributions are then taxed to the beneficiary. Beneficiaries pay taxes as is appropriate for the type of income that was generated, such as capital gains versus non-qualified dividends.

Many times, assets are strategically chosen for a dynasty trust to minimize their taxable growth. For example, non-dividend-paying stocks or non-taxable municipal bonds are often used.

Your trustee is responsible for accounting for the trust’s taxes each year, whether they do it themselves or hire an outside accountant. They are also able to deduct reasonable maintenance and administrative costs from the trust’s income, including their own compensation for administering the dynasty trust.

Albuquerque Dynasty Trust Law Firm

When properly formed, a dynasty trust can benefit your descendants over multiple lifetimes. This careful preparation can ensure that your own successes can benefit future generations, leaving behind a legacy worthy of your family’s illustrious name.

Find out more about how to best take advantage of dynasty trusts and structure them with your unique goals in mind when you call New Mexico Financial & Family Law. Call us at (505) 503-1637 or contact us online to schedule a confidential, no-obligation consultation.