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.”