The Jackson (MS) Clarion Ledger reported last week that a bill before the state Senate would allow the establishment of “Dynasty Trusts” designed to avoid or minimize estate taxes for the first time. The bill has already passed through the House.1
House Bill 891 has to be approved by the full Senate for the bill to advance. If approved by the Senate, it would go back to the House to see whether its members accept the changes.
A Dynasty trust allows the assets of the trust to be passed from one generation to the next exempt from federal gift, estate or generation-skipping transfer taxes. The length of a trust’s exemption varies from state to state. Some allow perpetual exemptions, while others limit their lifetimes to lengths of 110 to 1,000 years. Mississippi’s bill limits the exemptions to 50 years.
With the passage of this bill, Mississippi will join about half of the other states (including the District of Columbia) that currently allow Dynasty Trusts or have abolished their rules against them, including:
- New Hampshire
- New Jersey
- North Carolina
- Rhode Island
- South Dakota
Dynasty Trusts do not have to be established in a person’s state of residence; they can be set-up in whatever state best meets an estate’s requirements. In fact, a number of states are considered “Tier 1 states” by financial experts because they have no state income tax on trusts, including Alaska, Delaware, Nevada and South Dakota. Nevada has become one of the leading dynasty trust states because it also has no state income tax.2 Delaware offers extra breaks, including stronger protection from creditors and potential exclusion of assets in divorce proceedings.3
For more information, Bloomberg.com’s article, Dynasty Trusts Let Wealthy Duck Estate, Gift Taxes Forever, provides details about how Dynasty Trusts and their exemptions differ from state to state.
To explore establishing a Dynasty Trust for as part of your estate plan, contact us.
1. Bill would allow perpetuity trusts for first time in Miss.; clarionledger.com, March3, 2014
2. Dynasty Trust States, www.oshins.com
3. Dynasty Trusts Let Wealthy Duck Estate, Gift Taxes Forever ; Elizabeth Ody, Bloomberg Personal Finance, July 28, 2011