Dynasty Trust

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DEFINITION of 'Dynasty Trust '

Long-term trusts created to pass wealth from generation to generation without incurring transfer taxes such as estate and gift tax. The dynasty trust's defining characteristic is its term. The trust can survive for 21 years after the death of the last beneficiary who was alive when the trust was set up, and it can theoretically last for more than 100 years. The beneficiaries of a dynasty trust are usually the grantor's children, and after the death of the last child, the grantor's grandchildren or great-grandchildren generally become the beneficiaries. The trust's operation is controlled by the trustee who is appointed by the grantor. The dynasty trust is irrevocable, which means that once it is funded, the grantor will not have any control over the assets or be permitted to amend the trust terms.

INVESTOPEDIA EXPLAINS 'Dynasty Trust '

In order to stem the loss of billions of dollars in estate taxes, Congress enacted the generation-skipping transfer tax (GSTT) in 1986. While the GSTT is applicable to dynasty trusts, every individual (as of 2012) has a GSTT exemption of $5.12 million, or $10.24 million in case of a married couple.

RELATED TERMS
  1. Generation-Skipping Transfer Tax ...

    A tax incurred when there is a transfer of property by gift or ...
  2. Estate Tax

    A tax levied on an heir's inherited portion of an estate if the ...
  3. Gift Tax

    A federal tax applied to an individual giving anything of value ...
  4. Trust

    A fiduciary relationship in which one party, known as a trustor, ...
  5. Irrevocable Trust

    A trust that can't be modified or terminated without the permission ...
  6. Trustee

    A person or firm that holds or administers property or assets ...
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