Virginia is For Dynasty Trust Lovers!

Dynasty trust planningThis Article reads like an advertisement for South Dakota omitting one relevant fact:  there are now 27 states in our union that have abolished their ‘rule against perpetuities’ including the Old Dominion.

Some states have better trust laws when it comes to creating “dynasty trusts” than others.  Knowing the differences between dynasty trust-friendly states can make all the difference in the success of your planning if you want to engage in dynasty trust planning for your estate.  Virginia is right up there amongst the best dynasty trust jurisdictions. However, you would never know that by reading a recent article in Businessweek titled “South Dakota, Little Tax Haven on the Prairie.”   For that reason, I’m not a big fan of the article, having chosen instead to present the concept that the article should have made but didn’t:  there are 27 states in the U.S. that offer the best opportunity to create a ‘dynasty trust’.

Not all trusts operate by the same laws because each state has its own set of trust laws. Virginia trust laws are special.  Unlike 23 other states, Virginia does not impose a limit on the duration of a trust, legally referred to as ‘the rule against perpetuities’. The states that do have such a rule impose a terms of years after which the trust automatically terminates. What does that mean from a practical standpoint?  Under the trust laws of Virginia, a well-formed and well-funded trust allows one generation to help the one immediately below and also leave a bit extra for the second generation (grandparent to parent to grandchild), escaping the estate taxation that might otherwise have been applied on those two transfers.   This could be a powerful wealth transfer technique.

In fact, if you take away the duration limit, you are able to affect an intergenerational wealth transfer boon to generations as yet unborn.  You can create a true dynastic transfer of wealth, potentially escaping the estate tax at every successive transfer. That is the power a “dynasty trust” provides.

In the end, it may be well worth your time to learn more about the dynasty trust and, perhaps, about one of the 27 states that allows you to implement your dynasty trust planning.

Before you leap onto a dynasty trust bandwagon, however, carefully consider what you need your trust to accomplish and then investigate whether a state outside your own may be required. States differ, trusts can do different things, and your family is unique. Plan accordingly.

You can learn more about this topic as well as other strategies on our website under the tab entitled: estate planning in Virginia. Be sure you also sign up for our complimentary e-newsletter so that you may be informed of all the latest issues that could affect you, your loved ones and your estate planning

Reference: Bloomberg Businessweek (January 9, 2014) “South Dakota, Little Tax Haven on the Prairie



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