Tom from FT. Lauderdale asks:
Dear Ambassador Nagel,
what is the reason to set up a “dynasty trust” instead of more common types of trusts and traditional estate planning?”
Hi Tom, thanks for your great question. This is a topic I really love and could write a book on. It starts with the biblical command to leave an inheritance for your children’s children. We know that when the Lord wants to accomplish great things he often uses three generations or more to do so and that decades or even centuries don’t really mean much in HIS timeframe.
So to me a “dynasty” trust isn’t about hoarding resources into the future, but rather stewarding assets from one generation to the next and the next and the next and simultaneously using the wealth of the dynasty trust not only to create more wealth, but also to raise up leaders for your family, your community, and for the nation. This is done by ensuring they have sufficient assets to carry out their role.
We both know that how we would spend money as an 18-year-old is very different than how we spend money as a 50-year-old. Right Tom?
While most folks are content to leave money to their children and maybe grandchildren, a dynasty trust invites the long-term participation and integration of assets from many generations towards a specific future family purpose as outlined in the trust document by the Grantor.
As the “Grantor” of the dynasty trust and patriarch of your family, you have the special opportunity and even “privilege” I would say, to define what is important to you and lay out how you want and expect your resources to be used by future generations to accomplish the long-term financial goals of the family.
The dynasty trust obviously needs a methodology to generate income. For some folks, it is an investment portfolio and for others it is participation in an active business (or both).
Generally there is also an insurance component at various levels of the family to ensure that if there are business setbacks and investment losses, the money to the dynasty trust will nevertheless be replenished at various points in time as key members of the family pass away.
Next there is a formula as to when and how the trust beneficiaries can access the funds in the trust. This is as diverse as people’s imagination.
I’ve structured trusts where beneficiaries could receive income at various ages. Other trusts, the beneficiaries could only access monies for loans which of course had to be paid back, ensuring funding for the next generation.
In one particularly large trust, the Grantor indicated that his beneficiaries could ask for any amount of funds they desired in any year, provided it did not exceed the amount of money they earned themselves. Basically, he didn’t want his kids turning into trust fund babies and taking away their own motivation to provide for themselves and their own family. So if a child earned $50,000, then $50,000 would be the maximum they could receive from the family dynasty trust.
In one recent dynasty trust the elderly patriarch placed a large life insurance policy on the life of his 26-year-old attorney granddaughter. He figured there was plenty of money for his children and grandchildren, and by having the insurance on his granddaughter, he was ensuring fresh capital to the dynasty trust would be injected in 50, 60 even 70 years into the future to provide for future generations and their needs.
So that, in nutshell is how Dynasty Trusts work. We generally establish them in US and foreign jurisdictions that have legislatively eliminated the common law rule against perpetuities. We in fact want the trust to be able to operate into “perpetuity.”
We want to pass not only your money but also your value system onto future generations by giving access to the funds only in the manner that you determine.
Tom, I hope this has been helpful and I’d be happy to carve out some time to discuss this with you in person as to how a dynasty trust could benefit you and your heirs.
Ambassador Joel Nagel
About Joel Nagel
Joel Nagel is a U.S. licensed attorney who specializes in international business tax planning and offshore asset protection. Mr. Nagel has been practicing for over 20 years and is considered one of the top experts in planning, structuring, and operating an offshore business in a tax efficient manner. He is also the former Ambassador for Belize to Austria.
Joel Nagel sits on the boards of a wide variety of global companies including banks, real estate developers and online publishers. He brings a unique skill set and real world experience to each engagement.
Joel is a hands-on, in the trenches lawyer working on behalf of his clients. No matter the size or scope of your offshore business, he’s “been there and done that.”