Good Steward Law and Wealth Podcast Episode: How to Pass Wealth Generationally — The Dynasty Trust Structure

Episode Summary: Host and attorney breaks down how wealthy families like the Rockefellers actually build and protect generational wealth — and why it's not just about buying life insurance. He walks through the exact estate planning structure he uses for his own clients, parents, and himself.

Topics Covered:

• Why you need to avoid probate — It's time-consuming (6 months to years in Arkansas), expensive (1–6% of estate), public record, and can produce unintended outcomes for your family
• How trusts avoid probate — Assets held in a revocable trust pass directly to heirs outside of court, quickly and privately
• The two-step trust process — You must both (1) create the trust and (2) fund it by retitling assets (real estate, brokerage accounts, life insurance, IRAs/401Ks)
• What a dynasty trust is — A revocable trust that becomes irrevocable at death, creating sub-trusts for each child that pass generationally
• Asset protection benefits — Inheritance held in trust is protected from divorce, creditors, and bankruptcy — while children retain full control as their own trustees
• Tax planning opportunities — Capital gains tax strategy, including the step-up in basis at death, tax loss harvesting, and direct indexing
• Why your attorney and financial advisor must work together — Someone needs to quarterback your full picture: assets, titling, estate plan, and tax return

Key Takeaway: A properly drafted dynasty trust lets you leave wealth to your children in a protected, tax-efficient, and generationally enduring way — with full flexibility and control retained by your heirs.

Resources Mentioned:

• Website: ljenningslaw.com
• Previous episodes on probate and inherited IRAs/401Ks referenced

Book a consultation at ljenningslaw.com

Welcome back to the Good Steward Law and Wealth Podcast. Uh, those of you watching on video, you may see we're in a new studio, um, that we have here at the office. So, uh, excited to have this good background But t-in today's episode, what I wanted to talk about is passing wealth on generationally and how we think about it.

Um, I've seen a lot of things on the internet lately about how the Rockefellers did it. Uh, and typically when you see that, it is a life insurance agent trying to sell you life insurance. Um, they'll tell you you need to purchase a life insurance policy every time one of your kids is born and use it as a personal bank.

Um, so that's what they're talking about. But what they skip over is how the Rockefellers actually did it, you know, how they actually passed on their wealth. Now, I don't know the Rockefellers' specific estate plan, but I know enough being an attorney that these are the general structures that they set up.

Uh, just briefly, you can go back and listen to some of my other podcasts on probate specifically, but why you wanna avoid it is, I tell people it's really the, the big few things is one, it's time-consuming. Uh, probate takes a minimum of six months in Arkansas, but usually lasts a little bit longer than that, a year.

Um, the other thing is it's public, uh, so everything you have is on public record. If you wanna go look at your local courthouse, you can Google it. Uh, Arkansas is called courtconnect.com. You can see every open case, even closed cases. So you're gonna know what someone owned and where it went, um, which most people don't want.

And then the last thing is unintended consequences. A lot of times things don't go how you would want, 'cause people think, "Oh, I don't have an estate plan." Actually, you do. The state has one for you, and it may not match what your intent is. Um, example I give just real quick on what, what I mean by that is, you know, say we've had a husband and wife that own a property together.

So that clearly wasn't their intent. That was his retirement plan. Uh, but luckily in this case, you know, the family got along, they said, "Hey dad, this is yours. We're signing it over to you." But you could see how that wouldn't always be the case. So long way to say, I like to set all my clients up to avoid probate.

Um, so that's step one. And then step two is how do we actually avoid probate? And I can tell you of a few ways. There's all kinds of ways, but what we're gonna talk about right now is using a trust to avoid probate because this is really how you build and pass on wealth generationally in a protected manner.

But the benefit of that trust is if they are incapacitated, whoever they name as successor trustee, let's just say their son, can step in and manage that trust for them while they're unable. So they're in the nursing home, son steps in, pays all the bills, keeps their life rolling. So that's the benefit there.

But the second benefit is everything in that trust avoids probate when they pass away. So basically anything owned by the trust just passes directly to, let's just say in this example they have a son and daughter, passes directly to the son and daughter after they're gone. No court involvement. Quick, easy and in a protected way.

So how does that actually work? When you set up the trust, just like a will, you know, a will is a one and done process. And again, go back to my other podcast, but a will does not avoid probate. And the reason being is when you set up a will, you sign the document, you're done. There's no other step. It tells the court where you want your stuff to go.

Or if you're opening a new account, you can just open it in the name of the trust, meaning you create the account in your trust. Um, the other thing, say you have life insurance, um, you make the trust the beneficiary on those accounts. Say you have IRAs or 401Ks, you make the trust the beneficiary. Real estate like your house, you deed that house and that property to the trust.

Now why it's beneficial and why we talk about it in our practice and why I talk about it in, with, uh, wealth managers and why it's important to do this structure, because I think this structure that I'm about to talk about is the most beneficial and best way to leave assets for the next generation, and not enough people are talking about it.

Now, we always talk about it in my practice and with the partners I work with on wealth management. We always talk about this, and we really set our clients up with in this way to do this. So what it's called, like I, I mentioned earlier, is a dynasty trust, and really it is just a fancy way to say, "I'm leaving everything to my kids in a trust that will be passed down generationally."

And you always have options on how you leave things. One way is to just say, "All right, it goes outright to them free and clear. They can do what they want to with it." It's like they're getting a check. The other way is to leave it to them in a trust. That's what I'm talking about with a dynasty trust. So when you pass away, your trust becomes irrevocable, and it says, "I want to create sub-trusts for my kids."

So basically, when you pass away, they meet with me, we create the sub-trust, we divide the assets and put it in there. So in the example we're using, we take everything divided fifty/fifty. Each child, son, daughter, gets their own trust that they are their own trustees of, assuming that's who you want. If they're responsible and okay with managing money, I usually say, "Yes, make them their own trustee."

Whatever her parents left her in this trust is protected for generations. I mean, and it doesn't go to ex-husband, it stays with daughter. The other benefit of that is it goes down generationally. So let's say something happened to the son and he passed away. That trust is already set up to go down to his kids and grandkids and great-grandkids, just down that line.

That's why they say that's how the Rockefellers did it, 'cause they set things up to pass generationally. Um, that's why I think it's really, really valuable, because why would you not want to inherit something in a protected manner, protected from all outside forces that you still have the flexibility and the control of?

So your kids are trustees and they can make distributions to themselves for those reasons. So health and education is explanatory, you know, school, doctors, whatever. But then those last two words, maintenance and support, is pretty broad, and if they are their own trustee, they are determining essentially what they need for maintenance and support.

So they can access what you leave them and distri- distribute it to themselves for whatever reason. But how they get asset protection generally is, let's say they are sued, they can step back and say, "Hey, this isn't my stuff. This is in the trust, and I can't make distributions for just anything." So that's how they get the asset protection, and that's where the value comes in.

That's what we do. I make sure the trust are drafted appro- appropriately, especially if I know you have these types of assets. And it's important that your attorney and your financial advisor are either the same person or working together, 'cause there is so much value left on the table if they're not, 'cause someone needs to play that quarterback.

Someone needs to know where your assets are, how they sit, how they're titled, and how to structure them within your estate plan. And one other thing I wanna mention too is tax planning. It is a huge portion of this. With the clients we work with, we ask for their tax return a lot of times. Think about it.

Let's say you own a r-real estate property that's been a rental property for years, or you have Walmart stock, that you've owned this for thirty years. You bought it really low. It's worth a lot of money now. Now, what happens with that is if you were to sell either of those, you're gonna owe capital gains tax on it, and that can be a pretty big tax based on the difference of what you bought it for and what it's worth now.

But this Walmart stock, you don't really need. Well, then I say, "Let's hold it, and let's put it in this trust and leave that to the kids," because they will get a step-up in basis and inherit that Walmart stock completely tax-free. So you wanna eliminate capital gains tax, that's one way to do it. Now, there's other ways to do it that if you are going to sell that property or sell that stock because, you know, you need the money or it's just time you feel like you need to diversify a little bit, you don't want so much wealth built, built in Walmart stock or whatever it is, there's some other strategies we can do that you'll hear people talk about, and I won't get into the details of this, but tax loss harvesting and direct indexing, some different things you can do to build up this bank of tax losses, so when you sell your sh- appreciated stock in the future, it will essentially eliminate or minimize that capital gains tax.

I mean, you're gonna leave things generationally that's protected, that minimizes taxes, that goes to who you want it to go to. So this has been The Good Steward Law & Wealth podcast. I appreciate everyone listening again. Um, and again, if you have any questions or want some more detail, just, uh, go to our website, ljenningslaw.com, um, or it's all over the, the podcast, our information, and try to book a meeting with me, and we can talk through, uh, some of your specific details.

Thank you.