Protecting wealth for future generations is often the goal for those who have been financially successful in life.
But legal entanglements, such as divorce of beneficiaries, lawsuits or child support requirements, often infringe on that goal in ways that the wealth-maker could not foresee.
To bypass those problems, as well as potential estate and gift taxes, a wealthy family founding father (or mother) can create a dynasty trust. A dynasty trust is a long-term trust that can last varying amounts of time, depending on state law. It is irrevocable, meaning once it is funded the grantor or succeeding trustees cannot change it.
Subtle differences in state law determine whether a dynasty trust is truly protected for future generations. Some states protect the trust from all incursions. Others allow trusts to be used for child support or do not provide full protection from divorcing spouses. The amount of time a trust is protected also varies by state.
Steve Oshins, of the Oshins and Associates law firm in Las Vegas, compared state laws and came up with the 10 states that provide the most protections for dynasty trusts. For the most part, those at the top of the list provide full protection to the trust from such things as income tax, from claims by divorcing spouses, and from claims of child support.
Those with slightly lower rankings allow some attachments for child support or divorcing spouses, have some limits on the time the trust can exist or have some exceptions for applying income tax. The states, in reverse order, are:
No. 10: Florida. Not protected against divorcing spouse claims or for child support claims.
No. 9: Illinois. Not protected from child support claims, but is protected from divorcing spouse claims.
No. 7: (Tie) New Hampshire. Not protected against divorcing spouse claims or for child support claims.
No. 7: (Tie) Delaware. Not protected against divorcing spouse claims or for child support claims.
No. 6: Ohio. Not protected against divorcing spouse claims or against child support claims.
No. 5: Wyoming. Not protected from child support claims, but is protected from divorcing spouse claims.
No. 4: Alaska. Provides full protection for 1,000 years.
No. 3: Tennessee. Protected from income tax except for dividends and interest.
No. 2: Nevada. Provides full protection for 365 years.
No. 1: South Dakota. Provides full protection.
