A Dynasty Trust is designed to last indefinitely, offering a lasting legacy and promoting family values across generations. Such trusts are not subject to estate taxes and offer robust protection against potential creditors, making the most of a grantor’s gift tax exemption and the generation-skipping transfer tax exemption. However, it’s important to note that not every state permits the creation of Dynasty Trusts.
Duration of a Dynasty Trust
Typically, trusts are constrained by the Rule Against Perpetuities (RAP), which mandates that a trust must end no more than 21 years after the death of the last known survivor among those alive when the trust was established.
Yet, some states permit dynasty trusts to extend beyond the traditional limits set by RAP, with South Dakota standing out by allowing trusts to operate indefinitely.
Advantages of Unlimited Duration
In jurisdictions that don’t recognize the extended or indefinite lifespan of dynasty trusts, trusts must eventually end as dictated by RAP or specific terms within the trust document, potentially leading to unfavorable tax implications and vulnerability to creditors for beneficiaries. Conversely, a Dynasty Trust in a state like South Dakota can persist indefinitely, avoiding successive generation taxes on trust assets and ensuring optimal tax efficiency and creditor protection.
Beyond the tax benefits, Dynasty Trusts serve as a means for senior family members to impart their values and aspirations to succeeding generations, embedding a sense of purpose and continuity within the family’s legacy.