Tax Facts

9078 / How can a Delaware dynasty trust be used in the context of business succession planning?

A Delaware dynasty trust can be used to transfer business interests from one generation to future generations while minimizing tax liability. Essentially, the trust is funded with the business interests. If the value of the business interests does not exceed the transfer tax exemption amount in the year of transfer, the transferred interests will, theoretically, increase in value within the trust and the appreciation will also be transferred without transfer tax liability.

Delaware is one of the few states that allow a trust to continue indefinitely, so that the trust creator and business owner can ensure that the business interests will benefit the heirs into future generations. Further, because the trusts are irrevocable and are generally protected from a taxpayer’s creditors, the business owner can ensure that his or her business is protected from the beneficiaries’ creditors even after death.

Planning Point: Creating a Delaware dynasty trust is a complex undertaking and requires expert legal advice in order to ensure that the trust document clearly meets Delaware statutory requirements.

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