If you’re the beneficiary of a dynasty trust, you might not know what to expect. Dynasty trusts are complicated legal structures, and it makes sense that you might be a bit confused. Below is a quick guide to understanding dynasty trusts.
What Is a Dynasty Trust?
A dynasty trust is a type of irrevocable trust created to pass wealth from generation to generation while minimizing taxes. As long as the assets remain in the dynasty trust, future generations likely won’t have to pay estate taxes, gift taxes, or generation skipping transfer (GST) taxes.
When establishing a dynasty trust, grantors can set whatever rules they want for how the trustee should manage the assets and distribute funds to beneficiaries. However, after the grantor funds the trust and it becomes irrevocable, they will not have any control over trust property and will have restrictions on their ability to change the trust’s terms.
What distinguishes dynasty trusts from other types of irrevocable trusts is its duration. Most trusts cannot exist forever because the “Rule Against Perpetuities” terminates them automatically after a few generations.
Fortunately, as perpetual trusts, dynasty trusts are carefully structured to avoid the Rule Against Perpetuities. If you set up a dynasty trust correctly, it can remain intact for many generations, making it an essential estate planning tool for families with significant wealth.
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How Does a Dynasty Trust Work?
The Rule Against Perpetuities puts a time limit on how long a trust could last after the death of the last potential beneficiary who was alive when the trust was created. The common law limitation was 21 years, but many states have either eliminated the Rule against Perpetuities or extended that time. Therefore, you can create a dynasty trust in any of these states.
Grantors can design dynasty trusts to allow beneficiaries to have almost total control over the trust property. In some circumstances, a beneficiary can be the sole trustee of a dynasty trust established for their benefit. However, it’s important to note that as the beneficiary’s ability to control the trust property increases, the property becomes more available to the beneficiary’s creditors.
A grantor may also choose to establish a more restrictive dynasty trust and employ a professional trustee to prevent beneficiaries from abusing family wealth. The possible control structures are numerous and can include sophisticated plans such as a “family council” that allows family input into the trust’s administration.
What Are the Advantages of a Dynasty Trust?
Long-Term Tax Protection
The assets placed into a dynasty trust and their future appreciation are removed from the grantor’s taxable estate. This structure helps minimize or avoid estate, gift, and generation-skipping transfer (GST) taxes across multiple generations.
Shielding From Beneficiary Creditors
Because the trust (not the beneficiary) owns the assets, creditors generally cannot reach those assets so long as the beneficiary doesn’t have direct control over them. This provides a safety buffer for family wealth.
Flexibility of Trustee Control vs. Beneficiary Autonomy
Grantors can tailor the control structure:
- Some dynasty trusts allow beneficiaries to serve as trustees under limited conditions.
- Others impose more restrictive trustee controls (e.g. professional trustee, family council) to reduce risks of mismanagement or abuse.
- Income tax advantages in certain scenarios
In favorable jurisdictions, placing assets in a dynasty trust can allow the trust to grow tax efficiently, especially when trust income is taxed at favorable rates or when beneficiaries are in lower brackets.
Continuity and Legacy Preservation
Because dynasty trusts are structured to last many generations (and in some states effectively indefinitely by avoiding or modifying the Rule Against Perpetuities), heirs can benefit from a stable trust plan over the long run.
What Are the Disadvantages of a Dynasty Trust?
Irrevocability and Inflexibility
Once funded, dynasty trusts are typically irrevocable, meaning neither the grantor nor beneficiaries can easily change the terms if family or financial circumstances evolve. This rigidity forces difficult long-term guesses at how future generations will need access to assets.
Gift and GST Tax Exposure on Funding
Transferring assets into a trust may trigger gift tax or generation-skipping tax if the transfer exceeds available exemptions. Even though many transfers can be sheltered by exemptions, careful planning is required to avoid unintended tax consequences.
Ongoing Income Tax Liability
While estate taxes may be avoided, assets inside the trust still generate income, which is taxed. High-trust tax rates, especially for undistributed income, can dampen growth if not carefully managed.
State Law and Perpetuity Limitations
Some states still impose time limits (traditional Rule Against Perpetuities) or restrict the duration of trusts, which can force eventual dissolution. You must structure the dynasty trust in a jurisdiction that allows long-term or perpetual trusts.
Complexity, Cost, and Administrative Burden
Establishing and maintaining a dynasty trust requires sophisticated planning, legal fees, trustee administration costs, and careful record keeping over multiple generations. Beneficiaries may be burdened by administrative complexity or trustee decisions that feel opaque.
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Which States Allow Dynasty Trusts?
Some states have maintained the 21-year Rule Against Perpetuities, and therefore do not allow dynasty trusts. The top tier states for dynasty trusts are Alaska, Delaware, Nevada, and South Dakota because they allow dynasty trusts and do not impose state income tax on trusts.
The states that have allowed dynasty trusts by abolishing the rule against perpetuities, allowing perpetual dynasty trusts include:
- Alaska
- Delaware
- District of Columbia
- Hawaii
- Idaho
- Illinois
- Kentucky
- Maine
- Maryland
- Michigan
- Missouri
- Nebraska
- New Hampshire
- New Jersey
- North Carolina
- Ohio
- Pennsylvania
- Rhode Island
- South Dakota
- Virginia
- Wisconsin
Some states have allowed dynasty trusts by enacting an opt-out for the Rule Against Perpetuities or making A different change to the Rule Against Perpetuities. Information about the rules in these states is detailed in the table below.
| State | Rule Against Perpetuities |
| Alaska | Perpetual; 1,000 years if a power of appointment is exercised |
| Arizona | 500 years |
| Colorado | 1,000 years |
| Delaware | Perpetual for personal property; 110 years for real estate |
| Florida | 360 years |
| Nevada | 365 years |
| Tennessee | 360 years |
| Utah | 1,000 years |
| Washington | 150 years |
| Wyoming | 1,000 years |
What if I’m Not Getting My Dynasty Trust Distributions?
When you get your dynasty trust distributions depends on the specific terms of the trust. Suppose you are a beneficiary of a dynasty trust and you’re entitled to receive money under the terms of the trust. In that case, the trustee is required to give you your money. While trustees are given various levels of discretion, their authority is usually limited to some extent.
Beneficiaries who do not receive the distributions they are entitled to based on the dynasty trust terms can take legal action against a trustee to recover what’s owed to them and, perhaps, even have the trustee suspended, removed or surcharged for breaching their fiduciary duties.
When should I contact a dynasty trust lawyer?
If you are a dynasty trust beneficiary who is not receiving proper distributions or if you are interested in creating your own dynasty trust, you should consult with a dynasty trust lawyer, immediately. Because dynasty trusts must be correctly structured to avoid the Rule Against Perpetuities and trust tax laws are complicated, you should seek an experienced attorney’s assistance, versus trying to manage a complex situation like this on your own.