Dynasty Trusts: Passing Wealth Across Multiple Generations

What is a dynasty trust?

A dynasty trust is a long-term irrevocable trust designed to hold and distribute wealth across multiple generations — sometimes for decades or even centuries. Unlike a typical trust that terminates when assets are distributed to children or grandchildren, a dynasty trust is structured to continue far into the future, keeping assets in trust for the benefit of successive generations of beneficiaries.

The appeal is straightforward: assets held in a properly structured dynasty trust are not included in the taxable estates of individual beneficiaries as those assets pass from generation to generation. This can produce extraordinary compound estate tax savings over time.

The generation-skipping transfer tax and why it matters

Without careful planning, transferring wealth to grandchildren or more remote descendants triggers the generation-skipping transfer (GST) tax — a federal tax imposed in addition to (and at the same rate as) the estate or gift tax. In 2024, that combined tax burden can exceed 40 cents on every dollar.

A dynasty trust is typically funded using the grantor's GST exemption (currently aligned with the estate tax exemption at approximately $13.61 million per person). Once the GST exemption is allocated to the trust, assets inside the trust — and all future appreciation — can pass from generation to generation free of the GST tax. Over multiple generations, the tax-free compounding effect can be substantial.

State law determines how long a dynasty trust can last

Traditionally, the common law rule against perpetuities limited trusts to a period measured by lives in being plus 21 years — roughly 90 to 100 years in practice. However, many states have now abolished or significantly relaxed this rule to attract trust business. States like South Dakota, Nevada, Delaware, and Alaska permit trusts of unlimited or very long duration.

You do not need to live in one of these states to take advantage of their favorable trust laws. With proper planning, a trust can be established in a jurisdiction with favorable perpetuities law, administered by a trustee in that state, and still benefit family members across the country.

What can a dynasty trust hold?

Dynasty trusts can hold virtually any type of asset: publicly traded securities, real estate, closely held business interests, life insurance, and more. Business interests are particularly well-suited to dynasty trust planning because the trust structure can preserve the integrity of a family enterprise across generations without forcing sales or buyouts at each generational transfer.

Balancing control and flexibility

Because dynasty trusts are irrevocable and potentially very long-lived, thoughtful drafting is essential. The trust should give the trustee enough discretion to respond to beneficiaries' changing needs while including enough structure to protect assets from misuse or creditor claims. Trust protector provisions — allowing a designated third party to modify certain trust terms in response to changes in the law or family circumstances — are an important tool for building long-term flexibility into a trust that will outlast any single generation.

A dynasty trust is a powerful strategy for families focused on multigenerational wealth preservation. Our attorneys can help you evaluate whether a dynasty trust fits your goals and identify the best jurisdiction and structure for your situation. Contact us to learn more.