Dynasty Trust: Tax Savings or Economic Disaster?

The Farm CPA Paul Neiffer raised a question recently in the Top Producer about the merits of a dynasty trust—a perpetual trust that could serve as a vehicle to keep farm ownership in families for several generations. The column caught the attention of Neil Harl, the Charles F. Curtiss Distinguished Professor in Agriculture at Iowa State University, who responded with a letter to the editor.

In his pros-and-cons analysis of the dynasty trust, which is on the books today in a handful of states, Neiffer wrote that the great power of the dynasty trust is the full compounding of assets with no estate tax slippage.

Under current estate tax law, an estate tax may be owed every time an asset passes to an heir. Neiffer explains that with a dynasty trust, the imposition of this estate tax may be postponed for multiple generations. Heirs are only entitled to income from the trust and possible principal distributions.

In Harl’s response, he wrote, “I can think of no other event or series of events that would be as devastating, long-term, to our economic system, particularly in agriculture, as widespread use of such a trust.”

He argued a dynasty trust was a bad idea because, among other things, it disrupts free market forces, limits the potential for land to be best used as generations pass and beneficiaries multiply, and hobbles economic growth.

To read the column and response in full, go to FarmEquip.org/dynasty.  S