An irrevocable trust designed to last as long as legally possible. Purpose is to pass wealth through as many generations as possible without any transfer taxes. Also protects against creditors or unhappy spouses of beneficiaries
Most states have a ‘Rule Against Perpetuities’ but some have eliminated it
Trust can last for 21 years after the death of any individual alive at the time of creation
A corporate trustee given broad powers to distribute income or principal
Transfer is subject to gift tax. Annual exclusion may be used only if the beneficiary is given a Crummey power
May be subject to GST tax if the trust has a skip person as a beneficiary
Can be inter vivos or testamentary
Assets may avoid transfer taxes and pass to multiple generations
Example(s): Say you and your wife set up a dynasty trust and fund the trust with $1 million. You have three children and six grandchildren. At the time the trust is created, the youngest grandchild has a life expectancy of 60 years, making the expected longevity of the trust 81 years. Assuming that the money will compound at an after tax rate of 6 percent per year and that no funds will be paid out during the term of the trust, the funds in the trust will grow to approximately $112 million by the time the trust ends. The dynasty trust in this example offers significant growth potential by eliminating transfer taxes on one generation of wealth transfers