A Weiss LLP Client Advisory: July 1, 2026

Clients have asked us about the so-called “Dynasty Trust.” What is it and is it for you? Hopefully, this article will assist the client to come to an answer of the merit of this device. Long and short, a dynasty trust lets a settlor move wealth out of the federal transfer-tax system for generations; the trade is permanence: once the assets go in, the settlor gives up control of them for good (generally). This vehicle sets up an irrevocable trust built to last for several generations, perhaps for centuries whereby the donor/grantor using up his skipping transfer (GST) tax exemption accomplish the goal. The assets can then pass to children, grandchildren and later descendants without estate or GST tax at each generation. Planning tip: Many states have abolished or greatly extended the rule against perpetuities, and that makes the very long term possible. South Dakota, Delaware, Nevada and Alaska are popular places to set up these trusts. The timing matters now. The One Big Beautiful Bill Act, signed July 4, 2025, set the combined estate, gift and GST exemption at $15 million per person ($30 million per married couple) for 2026. The amount is indexed for inflation after that and has no sunset date. The tax rate on transfers above the exemption stays at 40%.

Why a settlor would do it: the “pros”

• Taking growth out of the transfer-tax system for generations. The value of the exemption is applied only one time, equal to the value on the date of the gift; all subsequent growth in the asset stays exempt for as long as the trust is in existence. Example: suppose $15 million doubles about every 12 years and, would be about $240 million after 48 years with none of that growth is taxed when a generation dies. If the same wealth passed outright, each generation’s estate could lose 40% of the value above its own exemption.
• Protection from creditors and divorce. A spendthrift clause and discretionary distributions keep trust assets out of a beneficiary’s own estate. That generally keeps them away from the beneficiary’s creditors, judgment holders and a divorcing spouse. The protection lasts for every generation, not just the first.
• Protecting beneficiaries from themselves. Distribution standards such as health, education, maintenance and support (HEMS), incentive provisions and an independent trustee let the settlor provide for heirs who are young, inexperienced, struggling with addiction, or easily influenced.
• Keeping family assets together. A closely held business, farmland, real estate or a family vacation home can be kept in one place under unified management. Without a trust, these assets tend to split into smaller and smaller shares with each generation.
• Grantor-trust leverage. When the trust is drafted as a grantor trust, the settlor pays the income tax on trust earnings. Each payment shrinks the settlor’s taxable estate, and the trust grows untaxed. In effect, the payments work as additional gifts that use no exemption. A swap power also lets the settlor take back low-basis assets before death.
• State income-tax savings. Setting the trust up in a state with no fiduciary income tax, and naming a trustee there, can avoid state tax on accumulated income and gains. Whether this works depends on the rules of the settlor’s and the beneficiaries’ home states.

• Flexibility despite irrevocability. Trust protectors, decanting statutes, powers of appointment and directed-trust structures let the plan adjust to new tax law, family changes and investment needs.
• Using the exemption while it is here. The $15 million exemption is “permanent” only until

Congress changes it. Gifts made now lock in its benefit.

Why a settlor might not want to do it – the “cons”

• It is irrevocable. The settlor gives up both ownership and the right to get the assets back. A settlor who later needs the money cannot reach it. A spousal lifetime access trust (SLAT) gives indirect access through a spouse, but that access ends at divorce or the spouse’s death.
• No basis step-up in basis. Assets given during life keep the donor’s income-tax basis. They also skip the step-up at each later beneficiary’s death. For assets that grow a lot, the capital-gains cost can offset part of the transfer-tax savings. This matters most for families whose estates would never owe estate tax anyway. Swap powers and carefully timed general powers of appointment can soften the problem, but they do not remove it.
• Income tax once grantor status ends. A non-grantor trust reaches the top 37% federal bracket at only about $15,000 of retained taxable income. It may also owe the 3.8% net investment income tax. Distributing income avoids that cost but weakens the asset protection.
• Cost and administration for decades. The trust needs careful drafting, a correct GST allocation on Form 709, trustee and investment fees, annual tax returns and accountings. Those costs continue for generations, and out-of-state trustees add another layer.
• The so-called “dead-hand control” and family friction. Rules written today may fit badly 60 years from now. As the beneficiary class grows, interests split and conflicts between branches, between generations and with the trustee become more likely. Heirs can also feel controlled or come to depend on the trust.
• Legislative risk. “Permanent” exemption is permanent only until Congress acts. Past proposals have tried to limit how long GST exemption can last or to restrict grantor-trust techniques. New law could take away part of the planned benefit. States can also change their perpetuities or tax rules.
• It may not be needed. For couples well under $30 million, portability and an ordinary estate plan may solve the estate-tax problem. Asset protection or keeping assets in the family, not tax, would then be the main reason to proceed.

What Weiss LLP Thinks: A dynasty trust fits best when four things are true. First, the settlor’s estate is likely to exceed the exemption; second, the assets are expected to grow; third, the settlor can live without the transferred wealth; and, finally, the settlor values long-term protection more than flexibility and basis step-up. For families below the exemption, the decision rests mostly on how much they value asset protection and keeping assets in the family, weighed against costs and lost step-up. A plan with a trust protector, decanting authority and well-chosen powers of appointment keeps the trust adaptable as tax law and the family change.

This Client Advisory is strictly for clients of Weiss LLP: Contact Weiss LLP for more information.