Dynasty trusts refer to trusts created to last over many years and multiple generations. The goal of the trusts is to avoid taxes to the extent possible and create a source of income that will last beyond just one generation. The grantor of the trust may contribute an amount up to the current gift tax limit without having to pay any taxes. Afterwards, the only taxes on the assets of the trust may be income taxes which can be avoided through certain investments, and most importantly, the beneficiaries will not have to pay any taxes. The trust must be set-up as an irrevocable trust that cannot be controlled by the grantor or beneficiary. The grantor has much liberty to decide how the beneficiaries may receive income from the trust with only some states limiting the length of the trusts by the rule against perpetuities.
[Last updated in January of 2022 by the Wex Definitions Team]
- Keywords