Dynasty Trust

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.


Filed Under: ,

comments powered by Disqus
Hot Definitions
  1. Organic Growth

    The growth rate that a company can achieve by increasing output and enhancing sales. This excludes any profits or growth acquired from takeovers, acquisitions or mergers. Takeovers, acquisitions and mergers do not bring about profits generated within the company, and are therefore not considered organic.
  2. Family Limited Partnership - FLP

    A type of partnership designed to centralize family business or investment accounts. FLPs pool together a family's assets into one single family-owned business partnership that family members own shares of. FLPs are frequently used as an estate tax minimization strategy, as shares in the FLP can be transferred between generations, at lower taxation rates than would be applied to the partnership's holdings.
  3. Yield Burning

    The illegal practice of underwriters marking up the prices on bonds for the purpose of reducing the yield on the bond. This practice, referred to as "burning the yield," is done after the bond is placed in escrow for an investor who is awaiting repayment.
  4. Marginal Analysis

    An examination of the additional benefits of an activity compared to the additional costs of that activity. Companies use marginal analysis as a decision-making tool to help them maximize their profits. Individuals unconsciously use marginal analysis to make a host of everyday decisions. Marginal analysis is also widely used in microeconomics when analyzing how a complex system is affected by marginal manipulation of its comprising variables.
  5. Treasury Inflation Protected Securities - TIPS

    A treasury security that is indexed to inflation in order to protect investors from the negative effects of inflation. TIPS are considered an extremely low-risk investment since they are backed by the U.S. government and since their par value rises with inflation, as measured by the Consumer Price Index, while their interest rate remains fixed.
  6. Gilt-Edged Switching

    The selling and repurchasing of certain high-grade stocks or bonds to capture profits. Gilt-edged switching involves gilt-edged security, which can be high-grade stock or bond issued by a financially stable company such as the Blue Chip companies or by certain governments.
Trading Center