Delaware Dynasty Trusts
Building and transferring wealth over multiple generations
If you have significant wealth
that you wish to transfer to
your children and grandchildren
without sacrificing it to
estate taxes and unforeseen
circumstances, consider
a Delaware dynasty trust.
U.S. Trust Company of
Delaware can work with you,
your advisor, your attorney
and your accountant to
integrate the benefits of
a dynasty trust into your
estate plan, helping to
preserve and grow assets
for generations to come.
A Delaware dynasty trust — also known as a perpetual trust — is an estate
planning vehicle that allows you to transfer wealth to your children and future
generations of your family. Rather than passing assets directly to your children,
and they to their children, assets are contributed to a trust that benefits
multiple generations. Holding the assets in trust gives you greater control over
the assets, may allow you to shield the assets from future transfer tax and
provides additional protection.
the benefits of A DYNASTY TRUST
With a dynasty trust, you can protect and build your assets for future
generations. A dynasty trust:
•Helps to establish a line of defense against imprudent family spenders,
as well as creditors of generations of family beneficiaries
•Ensures that your wishes are carried out after your death by establishing
a clear method for asset distribution
•Shields assets transferred to the dynasty trust, future appreciation and trust
distributions from generation-skipping transfer (GST), estate and gift taxes
(depending on the terms of the trust, size of the transfer, allocation of certain
transfer tax exemptions and other taxable gifts you have made)
•May allow you to hold assets in trust indefinitely1
•Permits you to leverage your annual gift tax exclusions by using them to
protect transfers to the trust
•Allows you to avail yourself of Delaware’s favorable income tax laws2
1
Some states have a rule against perpetuities (RAP), which generally limits the life of a trust to no more than 21 years after the death of the last beneficiary alive at the
time the trust was created. In states that have abolished or significantly altered the RAP, dynasty trusts can have a maximum duration of specified years or can truly last in
perpetuity. Delaware is one state that has abolished its RAP and allows you to create truly perpetual dynasty trusts (with the sole exception of real estate, which can be held
for up to 110 years in trust).
2
Delaware does not impose a state income tax on trust assets, provided no beneficiary resides in Delaware. Depending on your state of residence and how the trust is structured,
you may be able to avoid state income tax on the income earned on the assets in your Delaware dynasty trust. This will allow trust assets to grow without reduction for state
income taxes.
Investment products:
Are Not FDIC Insured
Are Not Bank Guaranteed
May Lose Value
Investment products and services may be available through a relationship managed by U.S. Trust, Bank of America Private Wealth Management or through a relationship with
Merrill Lynch, Pierce, Fenner & Smith Incorporated (MLPF&S). Certain U.S. Trust associates are registered representatives with MLPF&S and may assist you with investment
products and services provided through MLPF&S and other nonbank investment affiliates. MLPF&S is a registered broker-dealer, Member SIPC, and a wholly owned subsidiary
of Bank of America Corporation. U.S. Trust, Bank of America Private Wealth Management operates through the U.S. Trust Company of Delaware and Bank of America, N.A.
Bank of America, N.A., Member FDIC.
Maximizing the GST tax exemption — Through proper use
of your GST exemption, you may pass assets to future
generations without subjecting those assets to the
GST tax.
Gaining future tax advantages — In order to maximize tax
advantages when creating your dynasty trust you must:
•The GST tax is a flat tax imposed in addition to estate
•Make use of your federal estate tax and gift tax
and gift taxes on assets transferred to a beneficiary two
or more generations removed from the person making
the transfer (for example, grandparents transferring
assets to grandchildren).
•When the GST tax is imposed in addition to estate or gift
taxes, the combined tax rates can approach 70% under
current laws.
•With proper planning, dynasty trusts can efficiently
•Properly allocate your GST exemption to transfers made
to your dynasty trust.
exemptions when transferring assets to your
dynasty trust.
•Take advantage of multiple annual gift tax exclusions
by transferring these amounts per beneficiary to
your dynasty trust, ensuring that the trust gives the
beneficiaries withdrawal rights over these contributions
and that additional GST exemption is allocated to these
contributions, as appropriate.
leverage use of your GST exemption.
•When the GST exemption is applied to a transfer of
assets, it shields those assets and future appreciation
from GST tax.
transfer tax benefits of a Delaware dynasty trust 3
Assuming an initial transfer
of $5,120,000 4:
Value of a Delaware
dynasty trust
Value of an
outright gift
End of year 1
$5,376,000
$5,376,000
End of year 20
$13,584,884
$13,584,884
End of year 40
(transfer to next generation)
$36,044,742
$18,022,371
(after transfer tax)
End of year 70
(transfer to next generation)
$155,783,299
$38,945,825
(after transfer tax)
End of year 100
$673,286,440
$84,160,805
(after transfer tax)
Calculations assume a 5% rate of return after taxes and fees and an estate tax rate of 50% upon every subsequent transfer to the
next generation. The calculations also assume that no distributions are made over the term of the trust.
These projections are estimates only and are based on constantly changing assumptions. Your actual results may be better or worse. Long-term financial projections cannot be
made with any certainty and are never guaranteed. Always consult with your independent attorney, tax advisor, investment manager and insurance agent for final recommendations
and before changing or implementing any financial, tax or estate planning strategy.
3
4
Assumes $5,120,000 of GST exemption and $5,120,000 of gift tax exemption, as set forth in the Tax Relief Unemployment Insurance Reauthorization and Job Creation Act of
2010, is applied to the transferred assets (fully shields the transfer from GST and gift tax). Exemption amounts used are in effect for 2012.
Funding a dynasty trust
A dynasty trust should ideally be funded with certain
types of assets. You should consider funding the trust
with assets that have tax-free potential growth, since
federal income tax rates on income earned by the trust are
comparable to those for an individual. Non-dividend-paying
growth stocks, tax-free municipal bonds and life insurance
are often appropriate choices to fund a dynasty trust.
An insurance policy on the life of the trust creator may be a
particularly appropriate asset to fund a dynasty trust.
Using life insurance to fund the trust can help assure that
your children and grandchildren will benefit from the full
value of the policy’s death benefit (through distributions of
trust income and principal once the death benefit is paid)
since, provided the trust is properly structured, the death
benefit will not be subject to transfer taxes. And, funding
the trust with life insurance frees up other of your assets to
meet charitable and other personal goals either during life
or at death.
Supporting you with generations of experience
A Delaware dynasty trust can last indefinitely, and its
complexity may increase dramatically as the number of
beneficiaries grows and their goals and objectives become
more diverse. As a qualified Delaware trustee, U.S. Trust
Company of Delaware can work with you, your advisor and
your attorney to deliver the full benefits of a Delaware trust
to you.
Drawing on more than 200 years of experience, we can
provide comprehensive support in implementing your
trust, from simple trust administration to complete
investment management. In keeping with the advantages
of a Delaware trust, we will structure a relationship that
is flexible, collaborative and exclusively focused on your
goals. And we will do it with a special balance of technical
skill, professionalism and sensitivity that has characterized
our trust relationships for generations.
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U.S. Trust Company of Delaware is a wholly owned subsidiary of Bank of America Corporation. Additional information is available upon request.
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