Securing Your Legacy: Dynasty Trusts

There are many types of trusts to consider when creating an estate plan and building a legacy. One that provides the distinct ability to pass wealth from one generation to the next while minimizing taxation is called a dynasty trust. While "dynasty" may sound like the domain of ultra-wealthy clients, the reality is many families can benefit from dynasty trusts.

What Are Dynasty Trusts?

A dynasty trust is a type of irrevocable trust. Unlike traditional trusts, which typically have a limited lifespan, dynasty trusts can continue for hundreds of years. Additionally, they can be a valuable tool for those who want to minimize their tax burden and ensure that their wealth is passed down to their heirs without incurring gift or estate taxes.

Why Use a Dynasty Trust

Trust Administration

One of the key benefits of a dynasty trust is the continuation of trust administration for multiple generations. This means that the assets held in the trust can be managed and distributed by a trustee for the benefit of future beneficiaries. It allows for the preservation and growth of assets over time. This also provides a level of protection for beneficiaries who may not have the financial knowledge or experience to manage a large inheritance on their own.

Tax Benefits

Dynasty trusts can also offer significant tax benefits. By placing assets in a dynasty trust, the assets are removed from the grantor's estate, reducing the potential for estate taxes. Additionally, the assets in the trust can grow and be distributed to beneficiaries without incurring gift or estate taxes. If the grantor contributes up to the current gift tax exclusion, the trust assets may only be subject to income taxes - often minimized through strategic investments - and importantly, the beneficiaries will not owe any taxes on those assets.

This can be beneficial to affluent individuals who want to minimize their tax burden and transfer wealth to future generations, while taking advantage of generation skipping tax (GST) strategies.

Creditor Protection

Another benefit of dynasty trusts is that they offer creditor protection for beneficiaries. Assets in dynasty trusts are not owned by the beneficiaries, which means they are shielded from creditors and potential lawsuits. This can be particularly important for beneficiaries who may be in high-risk professions or who have a history of financial instability.

How to Set Up a Dynasty Trust

Choosing a Trustee

One of the most important decisions when setting up a dynasty trust is choosing a trustee. The trustee is responsible for managing the assets in the trust and making distributions to beneficiaries according to the terms of the trust document.

It is important to choose a trustee who is trustworthy, financially responsible, and has the necessary knowledge and experience to manage the assets in the trust. Many people choose a professional trustee, such as a bank or trust company, to ensure that the trust is managed properly.

Funding the Trust

Once the trust document is created and a trustee is chosen, assets can be transferred into the trust. This can include cash, stocks, real estate, and other valuable assets. It is important to work with a financial advisor or estate planning attorney to determine the best assets to transfer into the trust and ensure that the transfer is done properly.

Dynasty Trusts in Action

Dynasty Irrevocable Trust Hypothetical Example

Mr. Smith creates a spousal lifetime access trust with dynasty trust provisions for the benefit of his wife and children. Mr. Smith makes a $5,000,000 gift to the trust and allocates his lifetime gift and GST tax credits for this amount on his gift tax return ($15 million gift tax exemption limit in 2026).¹ As per the Rule of 72, the gift would double to $10,000,000 in 10 years if yielding a 7% return compounding annually,²

Assuming the current exemption amounts, the assets held in this trust would be exempt from estate and GST taxation. The appreciation of those assets also escapes estate and GST taxation during his wife's lifetime (and for so long as those assets are held in trust) while also providing asset protection to the surviving spouse and children.

Dynasty Revocable Living Trust Hypothetical Example

Mr. Smith creates a revocable living trust with dynasty trust provisions for the benefit of his wife and children. At his death, Mr. Smith's estate is worth $5,000,000.

Assuming the current estate and GST tax exemptions, the entire amount will be exempt from estate and GST taxation. The appreciation of those assets also escapes estate and GST taxation in the same manner as described above, while also providing asset protection for the surviving spouse and children for their lifetimes.

Important Considerations

Dynasty trusts offer specific benefits and advantages that traditional trusts may not. They allow for trust administration to continue for multiple generations, can offer significant generation skipping tax (GST) benefits and provide creditor protection for beneficiaries. However, they are very complex vehicles that can often be costly to establish.

Caution: Dynasty trusts are not available in every state due to the rule against perpetuities, a common law principle that restricts the duration of controlled property interests, including those established within trusts.

If you are considering estate and inheritance planning to preserve and transfer your wealth to future generations, a dynasty trust may be a valuable addition to your strategy. Reach out to an MAI advisor, who can work with your estate planning attorney and attorney, to determine if a dynasty trust may be right for you. MAI does not provide legal advice.

¹ https://www.ml.com/articles/estate-gift-tax-exemption-sunset.html
² https://www.investopedia.com/terms/r/ruleof72.asp

Hypothetical examples shown are for illustrative purposes only and do not represent actual situations or results.

Information updated as of April 13, 2026. This is for educational purposes only. The opinions and analyses expressed herein are subject to change at any time. Any suggestions contained herein are general, and do not take into account an individual's or entity's specific circumstances or applicable governing law, which may vary from jurisdiction to jurisdiction and be subject to change. Distribution hereof does not constitute legal, tax, accounting, investment, or other professional advice. Recipients should consult their professional advisors prior to acting on the information set forth herein. In accordance with certain Treasury Regulations, we inform you that any federal tax conclusions set forth in this communication, were not intended or written to be used, and cannot be used by any taxpayer, for the purposes of avoiding penalties that may be imposed by the Internal Revenue Service.