The Dynasty Trust: Beating the “Three Generation Curse”
Tax Tips / Legacy & Governance
The Dynasty Trust: Beating the “Three Generation Curse”
💡 Executive Summary
- Problem: Standard wealth transfer is taxed at every generation (40% erosion per death).
- Solution: A Dynasty Trust sits in a “Trust Haven” state to avoid the Rule Against Perpetuities (RAP).
- Result: Wealth compounds tax-free for 365 years+ (or forever), bypassing transfer taxes for G2, G3, G4…
⚠️ JURISDICTION MATTERS
Most states (like CA/NY) force trusts to end after ~90 years (RAP). To create a true Dynasty Trust, you must situs the trust in South Dakota, Delaware, or Nevada, even if you don’t live there.
Most states (like CA/NY) force trusts to end after ~90 years (RAP). To create a true Dynasty Trust, you must situs the trust in South Dakota, Delaware, or Nevada, even if you don’t live there.
“Shirtsleeves to shirtsleeves in three generations” isn’t just about spending habits; it’s about tax erosion. The Dynasty Trust is the legal fortress that stops the IRS from taking a 40% toll at every generational checkpoint.
🧐 Core Definition: GST Tax
The Generation-Skipping Transfer Tax (GSTT) is a flat 40% penalty on top of Estate Tax if you give money to grandkids. A Dynasty Trust uses your GST Exemption to immunize assets from this tax forever.
The Generation-Skipping Transfer Tax (GSTT) is a flat 40% penalty on top of Estate Tax if you give money to grandkids. A Dynasty Trust uses your GST Exemption to immunize assets from this tax forever.
Performance Simulation
Multi-Gen Wealth ($10M @ 7% over 75 Years)
Standard Inheritance (Taxed 3x)
Repeated 40% Haircuts
$118M Net
Dynasty Trust (Taxed 0x)
Uninterrupted Compounding
$850M Net
The “Trust Haven” Advantage
| Feature | Standard State (e.g., CA) | Trust Haven (e.g., SD) |
|---|---|---|
| Lifespan | Must End (~90 Years) | Perpetual (Forever) |
| State Income Tax | Up to 13.3% | 0% Tax |
| Asset Protection | Weak (Exception Creditors) | Strong (Domestic AP) |
“A Dynasty Trust does not mean ‘ruling from the grave.’ It means ‘protecting from the grave.’ Your heirs get the benefit of the wealth without the burden of the tax.”
🔗 Related BMT Playbooks (Internal)
🛡️ Precursor Strategy: Funding via IDGT Sale 📉 Foundation: GST Tax Exemption Limits ✅ Action Plan: Choosing the Right State (SD vs DE)🏛️ Institutional Resources (External)
📜 Legal Text: IRC § 2601 (GST Tax Imposition) ⚖️ State Law: South Dakota Rule Against Perpetuities (Abolished) 🏛️ IRS Official: Allocating GST Exemption (Form 709)
BMT designs for tax reality, not theory.