Dynasty Trusts Can Last 1,000 Years -- and the Rich Are Taking Advantage

We all want to leave a lasting legacy that extends beyond our lifetimes. For the rich, this means not only passing on their wealth but also ensuring it lasts for generations. Passing down wealth and giving assets, however, may result in owing hefty federal estate or gift taxes.

This is where dynasty trusts come in handy.

A dynasty trust helps a person maintain control and ownership of their assets while providing tax advantages for their beneficiaries. Here's a closer look at how dynasty trusts work and how the rich are taking advantage of this opportunity to pass on their wealth to their loved ones.

What is a dynasty trust?

A dynasty trust allows you to transfer your wealth to multiple generations without having to pay taxes, such as estate and gift taxes. The trust is designed to last for multiple generations -- up to 1,000 years in some cases. Any assets you put into this trust, like stocks or bonds, are taxed only once.

A family can pass on their wealth without their beneficiaries having to worry about paying significant estate taxes or creditors seizing assets. It also allows families to control the distribution of their wealth for generations.

How do dynasty trusts work?

Dynasty trusts work by placing a family's assets in a trust that is controlled by a trustee. The trust can be set up to last for multiple generations, with each generation receiving a portion of the trust's assets.

Since these trusts are created to last for an extended period, many appoint a financial institution like a bank or investment firm to be a corporate trustee and oversee its management.

The trust can be structured in many ways, limiting the beneficiary's access to principal and interest, which keeps the trust's assets safe and secure from financial risk. The trust could also be set up to allow for distributions to be made to beneficiaries for specific purposes, such as education or health care.

What are the benefits of dynasty trusts?

The benefits of dynasty trusts are extensive. They provide families with a way to control their assets for generations, keep wealth within the family, and minimize estate taxes. Moreover, they can be structured in many ways to meet the unique needs of a family.

Dynasty trusts can be an effective way to shield assets from creditor claims, and the flexibility and tax benefits associated with a dynasty trust make them ideal for preserving wealth for generations.

Previously, the duration of trusts was typically limited to 21 years following the passing of a beneficiary who was living at the time the trust was established. However, within the last 40 years, more than half of states have done away with this law or expanded trust limits considerably.

In particular, states such as Florida and Wyoming allow dynasty trusts to endure for up to 1,000 years. Delaware even allows trusts to persist indefinitely, though time limits exist for real estate held in trusts.

Why are the wealthy using dynasty trusts?

The wealthy are taking advantage of dynasty trusts because they provide a tax-efficient way to transfer vast sums of wealth without having to pay significant estate taxes or risk losing those assets to creditors.

Currently, those who own assets worth more than $12.92 million for individuals and $25.84 million for married couples could face up to 40% tax rates for 2023. This exemption amount is temporary and the thresholds will decrease to nearly $6 million per person after 2025 if Congress doesn't make it permanent. As a result, many wealthy families are establishing dynasty trusts before the exemption period ends.

Dynasty trusts are a powerful wealth transfer tool for the ultra-wealthy. They allow families to pass on their wealth for generations without the burden of significant taxes or financial risks. Given the ever-changing legal and economic environment, establishing this kind of trust can help protect your assets while simultaneously benefiting future generations. Ultimately, dynasty trusts provide an excellent way to ensure wealth remains within the family for generations to come.