A dynasty trust is a long-term estate planning tool designed to protect and preserve wealth for multiple generations, potentially in perpetuity. Unlike traditional trusts, which often dissolve after the death of a named beneficiary or group of beneficiaries, a dynasty trust can extend for several generations, making it an attractive option for families who want to better ensure that their wealth is managed and passed down securely over time.
A dynasty trust is classified as an irrevocable trust, meaning that once it is established, it cannot be easily modified or terminated by a grantor. The focal goal of a dynasty trust is to provide for multiple generations without being subject to estate taxes at each generational level.
Key features of a dynasty trust
Individuals choose to craft trusts for a host of reasons. Their motivations tend to influence both the types of trusts they opt to create and the kinds of assets they use to fund those resources. Dynasty trusts, for example, have some unique features and are, therefore, particularly suited to operate well under highly specific circumstances. Key features of dynasty trusts include:
- Long-term wealth preservation: Dynasty trusts can last for an extended period, often hundreds of years or longer. This means that assets placed in the trust can be used to benefit not just a grantor’s children, but also grandchildren, great-grandchildren and beyond. The trust can be crafted in ways that allow its trustee to distribute income or principal to beneficiaries at specified times or upon reaching certain milestones, such as graduating from college or buying a first home.
- Protection from estate taxes: When assets are placed into a dynasty trust, they are subject to estate and gift taxes only once—at the time of the initial transfer. After that, the assets in the trust can grow and be distributed to future generations without being subject to additional estate taxes.
- Asset protection: Because a dynasty trust is irrevocable, the assets within it are generally protected from creditors, lawsuits and divorce settlements. This makes it an ideal tool for families looking to shield their wealth from certain financial challenges that may affect future generations.
Texas is an attractive state for establishing a dynasty trust due to its favorable trust laws. Unlike some states that impose a rule against perpetuities (which limits the ability of a trust to operate indefinitely), Texas allows dynasty trusts to exercise liberally. This makes Texas a prime location for families looking to create long-lasting trusts that can benefit future generations without the constraints of time limits.
