Dynasty Trusts: How to Build Multi-Generational Wealth That Lasts 365+ Years
Dynasty Trusts: How to Build Multi-Generational Wealth That Lasts 365+ Years
CORE INSIGHTS
- The Erosion: The 40% Estate Tax hits every generation. $10M becomes $6M (Child), then $3.6M (Grandchild). Wealth dissipates without planning.
- The Fortress: A Dynasty Trust uses the GST Exemption to shield assets from estate taxes forever (or for centuries). It keeps principal growing tax-free.
- The Geography: You must establish the trust in a state (SD, NV, DE) that has abolished the “Rule Against Perpetuities,” allowing it to last 365+ years.
“Shirtsleeves to shirtsleeves in three generations.” The tax code is designed to break up wealth. The Dynasty Trust opts out of this cycle, turning family wealth into a perpetual compound interest machine.
- Standard State (CA/NY): Trust must end ~90 years after creation. Tax Triggered.
- Dynasty State (SD/NV): Trust lasts 365 years to Perpetuity. No Tax Event.
*Result: Assets stay protected from divorce and creditors for centuries.
What-If Scenario: $13M Initial Funding (3 Generations)
| Generation | Standard (Taxed) | Dynasty Trust (Tax-Free) |
|---|---|---|
| Start | $13M | $13M |
| Gen 2 (Yr 30) | $36M | $100M |
| Gen 3 (Yr 60) | $162M | $761M |
Visualizing the Compounding Gap
*Figure 1: Wealth Accumulation. The Green Line (Dynasty) compounds uninterrupted, while Red steps down.*
Strategic Action Steps
Choose South Dakota (privacy), Nevada (asset protection), or Delaware. Do not use your home state laws if they have RAP.
File Form 709 to allocate your GST exemption to the trust. This stamps the money as “Exempt” forever.
Use a Trust Company in the chosen state to establish situs. Keep investment decisions with a family advisor.
The Bottom Line: Who Should Choose What?
- Do This: If you have >$10M and want to support great-grandchildren.
- Avoid This: If you fear spoiling heirs. (Use Incentive Clauses to mitigate).
Frequently Asked Questions
What is a Dynasty Trust?
An irrevocable trust designed to last for multiple generations, avoiding estate taxes at each transfer. It keeps principal growing tax-free.
How does it avoid the Rule Against Perpetuities (RAP)?
Specific states like South Dakota and Nevada have abolished RAP. By establishing the trust there, it can last for 365 years or more.
What is the GST Tax Exemption?
A lifetime exemption matching the Estate Tax limit. Allocating it to a Dynasty Trust shields assets from the 40% GST tax on transfers to grandkids.