The Forever Fund: Dynasty Trusts & GST Tax Exemption
The Forever Fund: Dynasty Trusts & GST Tax Exemption
Why giving money directly to your children is a 40% mistake. How to lock assets in a trust for 1,000 years to avoid the estate tax clipper at every generation.
Executive Summary
- The Problem (Estate Tax Decay): If you leave $50M to your son, the IRS takes 40%. When your son leaves the remaining $30M to his daughter, the IRS takes another 40%. After 3 generations, ~80% of the family wealth is destroyed by taxes.
- The Solution (Dynasty Trust): Instead of giving the money to your son, you put it in a Trust for his benefit. Because the Trust never “dies,” the 40% Estate Tax is never triggered again. The assets grow tax-free (for estate purposes) for potentially 1,000 years or forever.
- GST Tax Exemption: The IRS hates this, so they created the “Generation-Skipping Transfer (GST) Tax.” However, every individual has a Lifetime GST Exemption (~$13.6M). By allocating this exemption to the Dynasty Trust, you make it “Exempt” forever.
Rule Against Perpetuities (RAP)
Old English law required trusts to end after ~90 years (“Rule Against Perpetuities”). However, states like South Dakota, Nevada, and Delaware have abolished this rule. To build a true Dynasty Trust, you must situs the trust in one of these “Trust-Friendly” states, not in New York or California.
Mechanic: The Multi-Generational Compound
Forever
Duration
0% Estate Tax
Future Generations
Divorce Proof
Irrevocable
Loss of Control
Simulation: Direct Gift vs. Dynasty Trust ($10M Initial, 7% Growth, 40% Tax)
Wealth Value after 100 Years (3 Generations)
| Feature | Standard Trust (Revocable) | Dynasty Trust (Irrevocable) |
|---|---|---|
| Estate Tax | Included in your estate | Removed from estate forever |
| Asset Protection | Weak (Creditors can seize) | Strong (Beneficiary doesn’t own it) |
| Divorce Risk | Spouse can claim half | 100% Protected (It’s not their money) |
“You don’t own the money; you just control it. By severing ownership, you sever the tax liability. Your children get the ‘use’ of the wealth (income, houses, loans) without the ‘burden’ of the taxes.”
Essential Resources
INTERNAL
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