What Is a Dynasty Trust?

A dynasty trust is a long-term trust created to pass wealth from generation to generation without incurring federal transfer taxes such as the gift tax, estate tax, or generation-skipping transfer tax (GSTT) for as🌠 long as assets remain in the trust. &𒁏nbsp;

The dynasty trust's defining characteristic is its d♒uration. If properly designed, it can last fo𝄹r many generations.

How a Dynasty Trust Works

Historically, many states had a rule against "perpetuities" and stipulated when a trust had to end. A common rule was that a trust could continue for 21 years after the death of the last 澳洲幸运5官方开奖结果体彩网:beneficiary alive when the trust was established.

Under those circumsta🐬nces, a trust could theoretically last for 100 years or so.

S🧸ome states, however, allow wealthy individuals to create dynasty trusts that can endure for many generations into the future.

A dynasty trust is a type of 澳洲幸运5官方开奖结果体彩网:irrevocable trust. Grantors can set rules for how the money wi🅘ll be managed and distributed to beneficiaries. These rules may depend on the needs of beneficiaries and a grantor's desire to perpetuate care for future generations.

Once the trust is funded, the grantor will have no control over the assets nor be permitted to amend the trust's terms. The same is true for the trust's future beneficiaries.

Legally, no minimum amount is required for a Dynasty trust, so you don't have to have exceptional wealth to establish one. However, such trusts are most beneficial to those with a major amount of wealth and the goal of preserving it over many years for both, living beneficiaries and those to come.

The GSTT exemption is separate from and in addition to the estate and gift tax exemption.

Beneficiaries

The immediate beneficiaries of a dynasty trust are usually the grantor's children. After the last child's death, the grantor's grandchildren or great-grandchildren generally become the beneficiaries.

The trust's operation is controlled by a trustee whom theཧ grantor appoints. The trustee is typically a bank or 🌼other financial institution.

Taxes

Assets transferred to a dynasty trust can be subject to gift, estate, and GSTT taxes only when the transfer is made and if the assets exceed federal tax exemptions.

However, income taxes must be paid by the dynasty trust itself if assets produce income. Therefore, individuals often transfer assets such as non-dividend paying stocks and tax-free municipal bonds that don't produce taxable income. This minimizes the income tax burden.

Additionally, the assets that go into a dynasty trust and any appreciation on those assets are permanently removed from the grantor's taxable estate, providing another layer of tax relief. 

Because beneficiaries lack control over the trust's assets and their full inheritance remains in the trust, such appreciation is also exempt from their personal estates.

Similarly, the trust's assets are protected from claims by a beneficiary's creditors because the assets belong to the trust, not the beneficiary.

A trustee can distribute money from the trust to support beneficiaries, according to the trust terms. The distributions that beneficiaries receive are taxed 🐼as income or capital gains.

The Bottom Line

Dynasty trusts are used to preserve and transfer wealth to future generations witho𓆉ut incurring taxes. Their provisions control distributions to beneficiaries and can promote financial responsibility.

Individuals with significant taxable assets in their estates benefit the most from dynasty trusts. The dynasty trust becomes the asset owner, so the assets are not included in the grantor's estate when they die. For 2025, up to $13.99 million placed in a dynasty trust is exempt from taxes.