When some of America’s wealthiest families plan for future generation heirs, they increasingly turn to “dynasty trusts,” which essentially allow families to avoid estate taxes for generations. The leading dynasty trust states offer privacy for trusts and protection of assets from creditors. The amount of money now administered surpasses $100 billion.
Historically, states limited the duration of trusts to the lifetime of a living heir, plus 21 years. Because federal estate taxes are imposed at death, states that have not updated their law likely cause estates intended to last for generations to be faced with transfer taxes every generation, cannibalizing the value of the original estate. Dynasty trusts have the purpose of potentially avoiding generational transfer taxes in perpetuity or the distant future.
Another important benefit lies in preserving family values. Below are examples of trust clauses promoting generational fiscal responsibility: