Dynasty Trust: Immortality for Your Wealth
Tax Tips / Multi-Gen Planning
Dynasty Trust: Immortality for Your Wealth
๐ก Executive Summary
- Problem: Standard Estate Planning creates a 40% tax event every time a generation dies. Wealth typically dissipates by the 3rd generation due to this “Tax Erosion.”
- Solution: Establish a **Dynasty Trust** in a state like South Dakota or Nevada that abolished the “Rule Against Perpetuities.”
- Result: Assets grow inside the trust forever. Children and grandchildren get income, but they never “own” the principal, so the 40% Estate Tax is never triggered again.
โ ๏ธ THE GST TAX HURDLE
The IRS imposes a “Generation-Skipping Transfer (GST) Tax” (flat 40%) if you try to skip a generation. However, you have a Lifetime GST Exemption (currently ~$13.6M). The key is to allocate this exemption to the Dynasty Trust at inception. Once allocated, the trust is exempt forever, no matter how big it grows (even to $1 Billion).
The IRS imposes a “Generation-Skipping Transfer (GST) Tax” (flat 40%) if you try to skip a generation. However, you have a Lifetime GST Exemption (currently ~$13.6M). The key is to allocate this exemption to the Dynasty Trust at inception. Once allocated, the trust is exempt forever, no matter how big it grows (even to $1 Billion).
Most trusts are designed to end. A Dynasty Trust is designed to last forever. By removing the assets from the tax system permanently, you create a “Family Bank” that funds education, business ventures, and lifestyle for generations unborn, protected from creditors, divorce, and the IRS.
๐ง Core Mechanic: Rule Against Perpetuities (RAP)
Old English law (RAP) said a trust must end ~21 years after the death of the last beneficiary alive at its creation (roughly 90 years). States like South Dakota repealed this. In these states, a trust can legally last for 365 years or even forever.
Old English law (RAP) said a trust must end ~21 years after the death of the last beneficiary alive at its creation (roughly 90 years). States like South Dakota repealed this. In these states, a trust can legally last for 365 years or even forever.
Performance Simulation
Wealth After 3 Generations (90 Years)
Standard Inheritance (Taxed every 30 yrs)
$48M Final Value
Eroded by 40% cuts
Dynasty Trust (Taxed ONCE at start)
$460M Final Value*
Compound Interest Unleashed
Jurisdiction Matters: Why Not New York/California?
| Feature | Home State (NY/CA) | Trust Haven (SD/NV/DE) |
|---|---|---|
| Trust Duration | Must end (~90 years) | Perpetual / 365+ Years |
| State Income Tax | High (up to 13.3%) | 0% (No tax on trust income) |
| Privacy | Court Records Public | Total Secrecy (Sealed) |
“The Dynasty Trust is the ultimate compound interest machine. It allows your money to work uninterrupted by the government’s ‘death toll’ for centuries.”
๐ Related BMT Playbooks (Internal)
๐ก๏ธ The Engine: Using IDGTs to pump assets into the Dynasty Trust โ๏ธ The Fuel: Wrapping trust assets in PPLI for tax-free growth โ The Shield: Why Nevada law is superior for protection๐๏ธ Institutional Resources (External)
๐ Legal Text: IRC ยง 2601 (GST Tax Rules) ๐๏ธ Industry Guide: South Dakota Trust Company on Dynasty Trusts ๐ Definition: The Rule Against Perpetuities Explained
BMT designs for tax reality, not theory.