Dynasty Trusts

Their are two major ways that a Revocable Living Trust will terminate beyond a person’s lifetime. At an entry level, a Trust will say that the Successor Trustee should collect trust assets, pay final expenses, and distribute the assets outright to certain beneficiaries so long as they are over a specified age. This is probably the most common method of distribution for trusts. A person who inherits property under this sort of Trust would generally receive a check that they would then deposit into their personal account or into a joint marital account. The downside to this method of distribution would be that once the property is distributed to the beneficiary, it would be exposed from a liability perspective. Said differently, if a beneficiary got sued for any reason, the inherited funds would be easily exposed and unprotected.

In order to avoid liability, there is a second way that a trust can terminate. Instead of distributing funds outright to a beneficiary, it is possible to have trust funds transfer to a sub-trust (a sub-trust is a trust created within the terms of a trust). So long as a beneficiary is over a specified age, the beneficiary could even administer their sub-trust on their own. In other words, a beneficiary can named trustee of their inheritance trust (referred to here as a Dynasty trust). The magic of having funds held inside a sub-trust for the benefit of a beneficiary (instead of funds being distributed outright to a beneficiary) is that if the beneficiary is sued for any reason (divorce, slip and fall, etc.) the assets inside the trust would be protected from a liability standpoint.