# What Is a Dynasty Trust?

## What Is a Dynasty Trust?

A dynasty trust is a long-term trust created to pass wealth from generation to generation without incurring federal transfer taxes such as the gift tax, estate tax, or [generation-skipping transfer tax (GSTT)](https://www.investopedia.com/terms/g/generation-skipping-transfer-tax.asp) for as long as assets remain in the trust.  

The dynasty [trust's](https://www.investopedia.com/terms/t/trust.asp) defining characteristic is its duration. If properly designed, it can last for many generations.

### Key Takeaways

*   Dynasty trusts allow wealthy individuals to leave money to future generations without incurring estate taxes.
*   In 2025, an individual can put up to $13.99 million in a dynasty trust that will be exempt from the GSTT.
*   This GSTT exemption is separate from and in addition to the estate and gift tax exemption.
*   Dynasty trusts are irrevocable, and their terms cannot be changed once funded.
*   No minimum amount is required for a dynasty trust; they aren't just for the ultra-wealthy.

## How a Dynasty Trust Works

Historically, many states had a rule against "perpetuities" and stipulated when a trust had to end. A common rule was that a trust could continue for 21 years after the death of the last [beneficiary](https://www.investopedia.com/terms/b/beneficiary.asp) alive when the trust was established.

Under those circumstances, a trust could theoretically last for 100 years or so.

Some states, however, allow wealthy individuals to create dynasty trusts that can endure for many generations into the future.

A dynasty trust is a type of [irrevocable trust](https://www.investopedia.com/terms/i/irrevocabletrust.asp). Grantors can set rules for how the money will be managed and distributed to beneficiaries. These rules may depend on the needs of beneficiaries and a grantor's desire to perpetuate care for future generations.

Once the trust is funded, the [grantor](https://www.investopedia.com/terms/g/grantortrustrules.asp) will have no control over the assets nor be permitted to amend the trust's terms. The same is true for the trust's future beneficiaries.  

Legally, no minimum amount is required for a Dynasty trust, so you don't have to have exceptional wealth to establish one. However, such trusts are most beneficial to those with a major amount of wealth and the goal of preserving it over many years for both, living beneficiaries and those to come.

The GSTT exemption is separate from and in addition to the estate and gift tax exemption.

## Beneficiaries

The immediate beneficiaries of a dynasty trust are usually the grantor's children. After the last child's death, the grantor's grandchildren or great-grandchildren generally become the beneficiaries.

The trust's operation is controlled by a [trustee](https://www.investopedia.com/terms/t/trustee.asp) whom the grantor appoints. The trustee is typically a bank or other financial institution.

> **Tip**
>
> Anyone can be appointed as a trustee. But an organization with a proven history of managing long-term trusts is beneficial because a dynasty trust can endure for a long time, beyond the lifetime of an individual trustee.

## Taxes

Assets transferred to a dynasty trust can be subject to gift, estate, and GSTT taxes only when the transfer is made and if the assets exceed federal tax exemptions.

However, income taxes must be paid by the dynasty trust itself if assets produce income. Therefore, individuals often transfer assets such as non-dividend paying stocks and tax-free municipal bonds that don't produce taxable income. This minimizes the income tax burden.

Additionally, the assets that go into a dynasty trust and any appreciation on those assets are permanently removed from the grantor's taxable estate, providing another layer of tax relief. 

Because beneficiaries lack control over the trust's assets and their full inheritance remains in the trust, such appreciation is also exempt from their personal estates.

Similarly, the trust's assets are protected from claims by a beneficiary's creditors because the assets belong to the trust, not the beneficiary.

A trustee can distribute money from the trust to support beneficiaries, according to the trust terms. The distributions that beneficiaries receive are taxed as income or capital gains.

## Is a Dynasty Trust Beneficial?

Establishing a trust can have benefits and drawbacks depending on your financial situation. If an individual has significant assets and wishes to [create a legacy of wealth for your family](https://www.investopedia.com/how-to-build-generational-wealth-8417999), a dynasty trust might be a good idea.

## What Are the Disadvantages of a Dynasty Trust?

The trust is irrevocable. Individuals lose control of all assets within the trust. Additionally, they cannot change the terms of the trust once it is created.

## Who Pays Taxes on a Dynasty Trust?

Dynasty trusts usually file a tax return and pay taxes owed by the trust itself. The beneficiaries pay income or capital gains taxes if they receive income from the trust. Generation-skipping taxes are deferred until the trust terminates and the final beneficiaries receive the remaining assets.

## The Bottom Line

Dynasty trusts are used to [preserve and transfer wealth](https://www.investopedia.com/dynasty-trusts-for-preserving-generational-wealth-11714018) to future generations without incurring taxes. Their provisions control distributions to beneficiaries and can promote financial responsibility.

Individuals with significant taxable assets in their estates benefit the most from dynasty trusts. The dynasty trust becomes the asset owner, so the assets are not included in the grantor's estate when they die. For 2025, up to $13.99 million placed in a dynasty trust is exempt from taxes.  

> **Article Sources**
>
> 1.  Washington University Law Review. "[The Rule Against Perpetuities Applied to Trusts](https://openscholarship.wustl.edu/cgi/viewcontent.cgi?article=5384&context=law_lawreview#)." Page 286.
>     
> 2.  RSM. "[The Clock Is Ticking: Don't Let Your GST Exemption Go to Waste](https://rsmus.com/insights/services/business-tax/clock-ticking-dont-let-your-gst-exemption-waste.html#:~:text=Likewise%2C%20GST%20exemption%20is%20separate,more%20generations%20younger%20than%20you%29.)."
>     
> 3.  Internal Revenue Service. "[What's New - Estate and Gift Tax](https://www.irs.gov/businesses/small-businesses-self-employed/whats-new-estate-and-gift-tax)."
>     
> 4.  Western & Southern Financial Group. "[What Is a Dynasty Trust?](https://www.westernsouthern.com/retirement/dynasty-trust)"
>     
> 5.  Internal Revenue Service. "[Estate Tax](https://www.irs.gov/businesses/small-businesses-self-employed/estate-tax)."
>     
> 6.  Trust & Will. "[A Beneficiary's Guide to Dynasty Trusts](https://trustandwill.com/learn/dynasty-trusts-for-beneficiaries?srsltid=AfmBOooHOfhT3W5kF7MEMjDQ0ITJij6epLdbtnrEPBtD2VOnVITRCQwk)."
>     
> 7.  Morgan Lewis. "[IRS Announces Increased Gift and Estate Tax Exemption Amounts for 2025](https://www.morganlewis.com/pubs/2024/10/irs-announces-increased-gift-and-estate-tax-exemption-amounts-for-2025)."