Dynasty Trust

A dynasty trust is designed to compress or eliminate the usual generational "reset" in which assets pass through an estate — and face potential estate tax — at each generation. Assets contributed to a properly structured dynasty trust can benefit children, grandchildren, and more remote descendants while remaining outside any individual beneficiary's taxable estate. The trust's duration depends heavily on the laws of the state in which it is formed; some states have abolished the traditional rule against perpetuities, allowing trusts to run indefinitely.

Families at the higher end of the wealth spectrum — those exploring the considerations outlined at /wealth-at-100-million and beyond — sometimes evaluate dynasty trusts as a way to make a single use of the generation-skipping transfer tax exemption stretch across many future generations. Illustratively, a trust funded with $10 million today, if it compounds over decades without estate-tax erosion at each generation, could represent dramatically more purchasing power for great-grandchildren than the same amount passed outright each generation.

A common confusion is that dynasty trusts are simply about avoiding tax. Equally important is governance: who serves as trustee, how distributions are decided, and how the trust adapts to beneficiaries whose lives and needs cannot be predicted. Poorly drafted distribution standards or trustee succession plans can create family conflict that outlasts any tax benefit. The choice of trust situs (the state whose laws govern the trust) is a critical, technical decision. A qualified estate-planning attorney must evaluate any particular family's situation before pursuing this structure.