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What is a Dynasty Trust?

Asset Protection Trust


A Dynasty Trust is a perpetual Irrevocable Trust designed to protect family assets. It avoids the Rule Against Perpetuities, offering benefits such as creditor protection, value-based estate planning, and tax shielding. Customizable control structures and consulting with an estate attorney aid in forming a Dynasty Trust.

Nothing lasts forever. Well, this is not true for a few legal entities such as partnerships and corporations. For Trusts, a law called the Rule Against Perpetuities typically ends most Trusts after just a few generations have passed. Even the most meticulous planning of a Trust cannot prevent it from one day dissolving into nothing. There is a way around the Rule Against Perpetuities called a Dynasty Trust.

Wyoming's Dynasty trusts are not covered by the Rule Against Perpetuities because they are created to last forever. The careful planning of a Dynasty Trust makes it a superior financial planning tool for families that have accumulated a substantial amount of wealth.

How Does a Dynasty Trust Work?

A common rule established by law stated a Trust had to expire 21 years after the death of the last beneficiary, as long as the beneficiary was living at the time the Trust was formed. Under the Rule Against Perpetuities, a Trust could last for as long as 100 years. Some states have eliminated the Rule Against Perpetuities, which has opened the legal door for Dynasty Trusts.

A Dynasty Trust is a type of Irrevocable Trust, which allows grantors to establish stipulations for how the trustee manages the money held within it. This includes how much of the assets each beneficiary is to receive. However, after a Dynasty Trust is funded, the grantor no longer has any influence over controlling the assets. A trustee, whom the grantor appoints, controls the Dynasty Trust.

What Are the Benefits of a Dynasty Trust?

A Dynasty Trust is one of the most effective ways to protect the assets of a family. The three primary benefits of forming a Dynasty Trust include the following:

  • Protection against creditor actions
  • Encourages value-based estate planning
  • Legal shield against taxes

Protection Against Creditor Actions

Forming a Dynasty Trust can protect the assets in the Trust from the creditors of each of the beneficiaries designated by the Trust. The protection lasts forever and it includes every type of asset that can be liquidated to pay off debt obligations.

Encourages Value-Based Estate Planning

Since a Dynasty Trust lasts into perpetuity, the creator of the Trust can pass on values like work ethic and personal philosophies to all beneficiaries. Passing along values includes adding incentives that encourage each beneficiary to remain a productive member of society.

Legal Shield Against Taxes

When a creator designs and funds a Dynasty Trust correctly, the assets assigned to the Trust remain exempt from estate taxes for all beneficiaries. The compounding effect of tax exemptions for assets assigned to a Dynasty Trust means a Trust can increase wealth at a substantially faster rate than estates that are vulnerable to taxation. A Dynasty Trust also defers state and local income taxes.

How Do Beneficiaries Receive Assets From a Dynasty Trust?

You can create a Dynasty Trust in many ways. The customization benefit is especially helpful for large family Dynasty Trusts that have a considerable amount of money tied up in the Trust’s assets. You can create a highly restrictive Dynasty Trust or designate a trustee to be the only beneficiary of a Trust. The control structure implemented by the creator of a Dynasty Trust can include elaborate plans such as developing a Family Council that allows some, most, or all family members to have input into how the Trust is administered.

Final Thoughts on Forming a Dynasty Trust

In summary, a Dynasty Trust stands out as a powerful financial planning tool, providing an enduring solution to the constraints imposed by the Rule Against Perpetuities. Designed to withstand the test of time, it empowers families with a resilient defense against various challenges.

The benefits are threefold: shielding assets from creditors, fostering value-based estate planning that transcends generations, and providing a robust defense against tax implications. This not only secures family assets but also allows for the continual accumulation and preservation of wealth, making Dynasty Trusts an invaluable tool in the realm of financial planning.

Collaborating with an estate attorney is advised to navigate the complexities of forming a Dynasty Trust, ensuring that families can maximize the advantages and create a lasting financial legacy.