The Strategic Power of a Dynasty Trust

What is a dynasty trust, if not one of the most powerful solutions for wealthy families aiming to transfer wealth, minimize taxes, and protect assets across generations? With current exemption levels at historic highs and clarity about the future of estate taxes, now may be the most strategic time in decades to evaluate this planning approach.

Dynasty trusts, also known as perpetual trusts, are considered one of the most robust estate planning tools for ultra-high-net-worth families. These trusts have specific attributes that allow them to protect a family’s wealth from creditors and transfer taxes—and to do so for multiple generations and potentially forever. By removing wealth from the estates of not only the grantor, but also all subsequent generations, dynasty trusts offer the potential to permanently remove assets from the U.S. transfer tax system. However, this advantage does not come without significant potential challenges, which is why dynasty trusts are not a one-size-fits-all solution and are not appropriate for all families.

Overview of transfer taxes
One of the primary challenges wealthy families face when attempting to pass their wealth to successive generations is the U.S. transfer tax system, which consists of three different taxes: estate tax, gift tax, and generation-skipping transfer (GST) tax. Certain states also impose their own estate or inheritance taxes, but such state-level taxation is beyond the scope of this article, which focuses on the federal system.

As of 2025, the federal estate and gift tax exemption is $13.99 million per individual (or $27.98 million per married couple). The GST exemption also stands at $13.99 million per person. These exemptions will increase to $15 million per individual beginning January 1, 2026 under the new tax law. In addition, the exemptions will be increased annually for inflation.

The federal estate, gift, and GST taxes each impose a 40% tax on transfers that exceed these exemption amounts. It’s worth noting that the estate and gift exemptions are unified, meaning lifetime gifts reduce the exemption available at death. Effective planning often revolves around using these exemptions wisely—and trusts are a key component of such strategies.

Planning with trusts 
A defining characteristic of an irrevocable trust is its finality. Once a grantor contributes assets to such a trust, those assets are no longer considered part of the grantor’s estate for federal estate tax purposes.

Many estate plans involve the strategic use of the gift tax exemption to transfer appreciating assets into an irrevocable trust, allowing the value of those assets to grow outside the estate. Similarly, applying one’s GST exemption to a properly structured trust enables transfers to grandchildren (and beyond) without triggering GST tax—while also keeping those assets out of future estates.

Historically, one limitation on trust-based planning was the requirement that trusts terminate after a certain period, due to the Rule Against Perpetuities (RAP). This rule limited the duration of a trust to 21 years after the death of a life in being at the time the trust was created. In practice, this often meant trusts had to terminate within 90–100 years—returning assets to beneficiaries and exposing them to potential estate taxation in the future.

Some states allow for perpetual Trusts
While the federal transfer tax regime is governed by federal law, the permissible duration of a trust is determined by state law. Many states have modified or abolished the RAP, enabling trusts to last in perpetuity.

A trust that never terminates provides a powerful opportunity to remove wealth from the transfer tax system permanently, while benefiting multiple generations. This is the defining feature of a dynasty trust: a structure designed to transfer wealth not just to children and grandchildren, but to future generations—potentially without ever re-entering the taxable estate system.

Benefits of Dynasty Trusts

• Long-term tax efficiency: By transferring wealth to a trust that never terminates, families may be able to remove that wealth—and its appreciation—from the federal estate, gift, and GST tax systems indefinitely.
• Potential for income tax planning: A dynasty trust can be structured as a grantor trust for income tax purposes, allowing the grantor to pay the income tax on trust earnings. This allows assets within the trust to grow without tax erosion, while also reducing the size of the grantor’s taxable estate.
• Asset protection: Dynasty trusts are typically structured as spendthrift trusts, which may protect assets from the creditors, divorcing spouses, and liabilities of beneficiaries.
• Legacy stewardship: Beyond tax planning, some grantors are drawn to dynasty trusts because they offer a way to guide future generations. Thoughtfully crafted trust terms can encourage education, entrepreneurship, philanthropy, or other family values.

Challenges of Dynasty Trusts
While dynasty trusts offer powerful benefits, their perpetual nature introduces several planning and administrative complexities:

• Administrative complexity and cost: Dynasty trusts often divide into separate trusts for each new generation or beneficiary. Over time, this can result in dozens—or even hundreds—of trusts, each requiring its own legal, accounting, and administrative oversight.
• Inflexibility over time: Because dynasty trusts are irrevocable and often designed to last forever, they can become difficult to adapt to unforeseen future circumstances. Without built-in flexibility—such as trust protectors or decanting provisions—future generations may find the structure constraining or outdated.

A time-sensitive opportunity
The current estate and GST tax exemptions provide a limited-time window for families to take meaningful action. Dynasty trusts are one of the most powerful tools available to preserve wealth across generations—but they must be structured with foresight and professional guidance.

At Comerica, our Wealth Strategists and Trust Advisors have deep expertise in crafting and administering dynasty trusts across multiple jurisdictions with favorable trust laws. If you’re considering whether a dynasty trust is right for your family, we strongly encourage you to act before the 2025 sunset of current exemptions.

To learn more, speak with your Comerica Relationship Manager or request a consultation with a Comerica Wealth Strategist today.