Many estate plans incorporate irrevocable dynasty trusts, which can offer benefits such as tax minimization and asset protection. The benefits of these types of trusts continue for a surviving spouse’s lifetime and several future generations. The actual duration of the trust can be affected by such factors as state law and how long the money and property last. Some states have rules specifically addressing how long a trust can exist. Since these trusts are designed to span multiple decades, clearly defining who will be the dynasty trust beneficiaries in each generation is essential.
Who are your descendants?
In the past, the definition of descendant was straightforward: a person who can be traced back to a specific ancestor through the same bloodlines. But planning for today’s more diverse family structures now encompasses much more than biological heirs:
- Adopted beneficiaries. Should the definition of a descendant in your trust include a person your child, grandchild, or great-grandchild legally adopted? What happens if your child, grandchild, or great-grandchild gives a biological child up for adoption? Should a blood heir who has been adopted out of your family be included as your descendant? Consider explicitly including or excluding adopted minor and adult beneficiaries in your trust agreement’s definition of a descendant.
- Stepchildren. Should the definition of a descendant in your trust include a stepchild of your child, grandchild, or great-grandchild? What if your heir does not legally adopt the child but treats them like one of their own children? You may have the opportunity to get to know your stepchildren (and even your step-grandchildren) and decide whether to include or exclude them in the definition of descendants for the purposes of your estate plan (in fact, you could include some and exclude others). That said, it is essential to decide and communicate whether stepchildren in later generations whom you have not met should be included or excluded as beneficiaries of your trust.
- Beneficiaries conceived using assisted reproductive technology. Should the definition of a descendant in your trust include a child, grandchild, or great-grandchild conceived using artificial insemination or a surrogate mother? What about a child, grandchild, or great-grandchild conceived using an anonymous sperm or egg donor? While no one knows what the future definition of assisted reproductive technology will encompass, the definition of a descendant in your trust agreement should specifically include or exclude heirs conceived using such technologies.
Carefully Defining Your Dynasty Trust Beneficiaries Will Keep Your Heirs Out of Court
Who qualifies as your descendant 20, 30, or even 50 years into the future should be carefully considered and defined explicitly within your plan, especially when creating an irrevocable trust that cannot be modified and is intended to benefit multiple generations. Clearly defining who will be entitled to receive money and property from your trust will allow for a smooth transition between generations and keep your heirs and trustees out of court.
If you have questions about the definition of descendant used in your trust or would like to discuss how you can clearly define your trust beneficiaries, please book a FREE Discovery Call.
