Last updated: February 2026 to reflect how the One Big Beautiful Bill Act (OBBBA) impacts Dynasty Trust planning.
If you would like to provide for multiple generations of heirs, one of the best ways to do so is through a Dynasty trust. Gifting assets to a properly structured Dynasty trust offers many advantages, including asset protection, tax planning, and the ability to maintain family control after death. Although complex, a dynasty trust is a powerful estate-planning tool for preserving wealth and ensuring your legacy continues for generations.
Death and Taxes
The tax system imposes an estate and gift tax whenever wealth transfers to the next generation. If you try to avoid the estate tax by transferring wealth directly to another generation, such as grandchildren, an additional tax, called the generation-skipping transfer tax, is imposed. The current federal estate and gift tax rate is 40%. The generation-skipping transfer tax is also 40%, and it’s applied on top of the estate tax. The combined effect can eat up roughly 64 cents of every dollar transferred. That obviously can take quite the bite out of your family’s wealth
The tax system imposes an estate and gift tax whenever wealth transfers to the next generation. If you try to avoid the estate tax by transferring wealth directly to another generation, such as grandchildren, an additional tax, called the generation-skipping transfer tax, is imposed. For families with significant assets, understanding high-net-worth tax planning strategies is critical to keeping more of your wealth within the family.
The One Big Beautiful Bill Act (OBBBA) — A New Chapter for Estate Planning
The Tax Cuts and Jobs Act (TCJA) originally doubled the amount that can be passed to heirs without incurring estate or gift taxes. However, those higher thresholds were temporary and set to be cut roughly in half at the end of 2025.
That didn’t happen. On July 4, 2025, the One Big Beautiful Bill Act (OBBBA) was signed into law, permanently increasing the federal estate, gift, and generation-skipping transfer (GST) tax exemption to $15 million per individual, or $30 million for a married couple, effective January 1, 2026. These amounts will continue to be adjusted for inflation each year.
Now, “permanent” in tax law really means “until Congress changes its mind.” Think of it like a hiking trail that’s been officially marked — it’s the established path today, but a future park service could always reroute it. The favorable rules are in place right now, and there’s no scheduled expiration date, but that doesn’t mean they’ll last forever.
That’s why dynasty trusts remain as powerful as ever. For families with substantial wealth, the higher permanent exemption actually makes dynasty trusts more attractive — you can now shelter even more assets from transfer taxes across multiple generations. And for those below the exemption threshold, the asset protection and family governance benefits of a dynasty trust are compelling on their own.
What is a dynasty trust?
A dynasty trust, also called a generations-skipping trust, is an irrevocable trust that lasts longer than one generation below the Grantor. The two main benefits of a Dynasty Trust are that it allows the transfer of wealth from generation to generation, with minimal exposure to federal taxes, while maintaining some control after the Grantor is long gone.
The Grantor is the person who creates the trust and decides what property to include and who the beneficiaries will be. Irrevocable means the Grantor has no control over the assets. However, the Grantor can specify how the trust is managed through beneficiary distributions. The Grantor can place significant restrictions regarding where the money goes and how it gets spent.
How long does a Dynasty Trust Last?
In some states, a Dynasty Trust can last for several generations or hundreds of years without being required to distribute assets to beneficiaries or pay taxes to the IRS multiple times. Not all states allow these extended periods. The trust’s lifespan isn’t the only consideration when choosing which state to create a Dynasty Trust. If you’re trying to avoid federal income tax, you should also try to avoid state tax. Several states do not tax trusts. However, due to the ever-changing state tax laws, you should consult an attorney to ensure the home state of your trust is appropriate.
For example, Pennsylvania imposes its own inheritance tax, 4.5% for direct descendants, 12% for siblings, and 15% for most other heirs. So even if your estate is well under the federal $15 million exemption, state taxes can still take a meaningful bite. That’s another reason the state your trust calls home matters.
Reasons to consider a dynasty trust
Dynasty trusts have many unique benefits that make them attractive. There are two types of advantages: tax benefits and family benefits.
Tax benefits
- Generation-Skipping Transfer Tax (GST) Exemption: The GST tax is imposed on assets transferred to heirs more than one generation below the Grantor or unrelated persons more than 37.5 years younger than the Grantor that exceed the exemption limit of $15 million per individual (2026). The purpose of the GST is to prevent the transferor from avoiding transfer taxes by “skipping” a generation. Remember, the GST is an additional 40% tax levied on top of the gift and estate taxes. A Dynasty trust leverages the GST exemption to shift that amount of wealth out of the transfer tax system.
- Valuation discount: Another benefit of planning with a Dynasty Trust is that property transferred to a Dynasty Trust is often entitled to a valuation discount for gift tax purposes because the trust beneficiaries will not benefit from the property for many years. Therefore, they are less valuable, so more assets can be moved into the Dynasty Trust without surpassing the amount you can give free of gift taxes each year. Three factors determine the value of the discount: How much income or financial benefits the Grantor will receive from the trust, how long the Grantor will benefit from the trust’s property, and the current interest rates. The more the Grantor personally benefits from the trust, the less value it has to the ultimate beneficiaries and, therefore, the less value it has for gift tax purposes.
- Avoid double estate taxation: If you leave assets to beneficiaries without a trust, your estate could be subject to estate tax. Those same assets could be subject to estate taxes a second time when your beneficiaries pass, and so on. However, those assets are excluded from the estate tax calculations for your and future beneficiaries’ estates in a Dynasty Trust. The trust assets remain in the trust, not your beneficiaries’ estates.
- Defective Dynasty Trusts Bonus: Although this idea is beyond the scope of this blog post, there is a way to add another layer of tax goodness to the mix. If the Grantor owns the trust assets for tax purposes, the Grantor is responsible for the income tax payments instead of the trust, allowing the trust assets to grow because the trust assets aren’t reduced by income taxes. Also, the Grantor’s income taxes reduce the size of the Grantor’s overall taxable estate when calculating estate taxes. A seasoned estate planning attorney is required to set this up correctly! It’s worth noting that there have been proposals in recent years to limit or eliminate the benefits of grantor trusts, so taking advantage of this strategy sooner rather than later is worth discussing with your attorney.
Dynasty Trust Family Wealth Benefits
- Asset management: Dynasty trusts provide a way to manage assets for the benefit of your heirs, which is beneficial if your children or grandchildren are young, financially unsavvy, or irresponsible.
- Support for future generations: The trust agreement governs the beneficiaries’ income payout and principal distributions. A typical distribution example is to provide for the beneficiaries’ health, education, maintenance, and support, called HEMS provisions. You could allow the trustee to consider the beneficiaries’ other assets and sources of income when determining distributions. For example, you could enable distributions to a beneficiary of a certain age for as long as they achieve milestones such as college or trade school, or have no criminal record.
- Asset protection: Another benefit of dynasty trusts is that, when appropriately structured, assets within the trust are protected from creditors, both yours and the beneficiaries’. For example, if there was a divorce or a legal claim against you or the beneficiaries.
- Avoid Probate: A dynasty trust can also eliminate the need for probate court and the publicity that comes with it.
Downsides to a Dynasty Trust
There are also some potential disadvantages to a dynasty trust.
- Long fiduciary obligation: With dynasty trusts, your trustee must serve in that role for an extended period. Practically speaking, it’s best not to select an individual because your trust will outlive multiple generations. The best solution is to appoint a professional fiduciary as a trustee. That, along with careful drafting, can ensure continued professional management.
- Lack of flexibility: Dynasty trusts may exist for multiple generations. There could be events or unforeseen circumstances that the trust cannot address. No matter how hard you try, you can’t plan for every future situation your beneficiaries might encounter. Each state has laws that govern the ability to modify trust provisions. So, some flexibility should be considered.
As you can see, a dynasty trust is a powerful estate planning tool that helps protect your wealth from taxes and preserve it for future generations. The OBBBA’s permanent $15 million exemption makes dynasty trusts even more effective, but remember — “permanent” only lasts until the next act of Congress. The time to plan is while the rules are favorable. Talking to a CERTIFIED FINANCIAL PLANNER® professional and an estate planning attorney to determine if a dynasty trust is right for you is essential.
A dynasty trust isn’t a do-it-yourself project. It takes a team. If you’d like to explore whether a dynasty trust belongs in your estate plan, schedule a conversation with Great Oak Wealth Management. We’ll help you see how /taxes, investments, and legacy fit together.
