What is a dynasty trust and what can it do?

When you have built enough wealth to support your family for several generations, it is natural to seek a way to pass it on efficiently. There is an estate planning tool that may address your goals.

How a dynasty trust works

A dynasty trust is an agreement designed to hold and manage assets for your descendants over an extended period. Unlike standard trusts, which typically must vest or terminate roughly 21 years after the death of the last living beneficiary, a dynasty trust can continue for centuries.

Florida, in particular, is favorable for these vehicles. Under state law, trusts created on or after July 1, 2022, can last up to 1,000 years. This extended duration gives families significant flexibility in planning for future generations.

When you establish this agreement, you transfer wealth into it and designate a trustee to manage those assets. The trustee distributes income or principal to your beneficiaries according to the terms you set.

What you could gain from this approach

This type of trust offers the following benefits:

• Tax efficiency: Assets placed in a properly structured dynasty trust may avoid federal estate and generation-skipping transfer taxes as they pass from one generation to the next.
• Creditor protection: Since the trust owns the assets rather than your beneficiaries, the principal may be protected from lawsuits, divorce settlements and creditor claims.
• Flexibility for the future: The agreement can adapt to changing family circumstances through the trustee’s discretion while still following your original intentions.

The generation-skipping transfer tax exemption is currently $15 million per person  in 2026. When you allocate this exemption to a trust, it may also shelter any future growth on those assets from additional generation-skipping transfer taxes.

What you should think about first

Creating a dynasty trust requires careful consideration, particularly because the terms are typically irrevocable. However, it is important to note that Florida law provides specific mechanisms to modify the terms should laws or family circumstances change.

An estate planning attorney can help structure the document to align with your unique goals while ensuring compliance with federal and state laws. Furthermore, a financial advisor can assist in determining which assets to transfer and help develop strategies for long-term growth.