You may have heard of dynasty trusts, but assumed they were only for billionaires or people whose wealth dates back generations. In fact, a dynasty trust (sometimes called a bloodline trust) can be right for anyone who wants to help ensure that their assets remain in the family long after they’re gone.
Despite being known for its dynasties – both real and on television – Texas only recently (in 2021) enacted a law that allows true dynasty trusts that can last up to 300 years. Prior to that, like many states, Texas followed the “rule against perpetuities.” It allowed a trust to last up to 21 years after the last family member who was alive at the time the trust was set up passed away. These trusts could still easily last for a century but not longer than that.
What advantages can a dynasty trust provide?
It’s hard to envision a world 300 years in the future – or maybe even a century in the future. However, a dynasty trust can provide benefits to your family for years to come regardless of what may or may not be coming its way. A well-crafted dynasty trust offers the following advantages:
- It can be exempt from estate taxes and generation-skipping transfer taxes (GSTTs)
- It can protect the assets you leave your heirs from being taken by creditors or even from spouses via divorce
- It can pay tax-exempt dividends or income to heirs for multiple generations
Dynasty trusts aren’t without their disadvantages (or at least things worth considering). They aren’t inexpensive to maintain. Generally, they need a corporate trustee to manage them to help ensure that the assets continue to grow. Further, they’re irrevocable, which means that once they’re established, their terms can’t be modified.
This is just a brief outline of Texas’ dynasty trusts. If you think that this resource might be right for your family, it’s wise to seek legal guidance to learn more about them and develop an estate plan that meets your goals and serves your unique circumstances.