A common question that arises in our meetings with clients is about making sure that the business remains in the family for multiple generations. One option for accomplishing this is the use of a Dynasty Trust. Many states such as South Dakota, Delaware and Alaska allow for trusts that are either perpetual or last for 100′s of years. This allows the farm family to place the business into the trust and make sure that it will remain in the family for multiple generations. However, there are several questions that you must answer before doing this:
Is this what all of the family wants to happen? Has this been discussed with all of the next generation? Even though the assets may be placed into a trust, if communication has not occurred, “fights” about this may occur.
Is the business large enough to support the dynasty trust structure? The passing of the business to the next generation in a dynasty trust may make sense, however, once it passes onto the next generation or the one after that and there are suddenly 45 beneficiaries of the trust; the use of a trust may not make sense from an administration standpoint. The fees to properly allocate income and prepare the tax return may exceed the income generated by the trust.
How much control from the “grave” are you trying to achieve. My friend told me the only way to take his fortune to the grave with him was to write a check that could not be cashed. Is your desire to control this from the grave or do what is best for the next generation(s)? Sometimes this is the same answer, but many times it is not.
Is it better to transfer assets now than to wait for the estate? In many cases, a transfer during life makes more sense than waiting for a step-up in basis. If the business will remain in the family for multiple generations, there will be no sale anyway. By gifting now, you may be able to escape estate taxes later. The dynasty trust can be used during your lifetime.
These are some of the important questions that must be answered. There are most likely many others that apply to your situation. Now is the time to get help from GellerRagans on how best to accomplish this.