A dynasty trust is a way to protect and grow your wealth so it can benefit not just your children but future generations as well. These trusts can offer strong advantages, including potential tax savings and protection of family assets. However, dealing with the world of dynasty trusts can be complicated, and many families find it difficult to sort through the details on their own. Having clear information and the right guidance can make all the difference when deciding if this type of trust is right for you and your loved ones.
When it comes to securing your family’s financial future, understanding the intricacies of dynasty trusts is important. At The Matus Law Group, our experienced New Jersey trust attorneys understand the intricacies of dynasty trusts and can help you establish and maintain a trust that will protect your assets for your descendants. We can help you select the right trustees, manage assets, and minimize tax burdens. Contact us today at (732) 785-4453 for personalized guidance and legal assistance.
What is a Dynasty Trust?
A dynasty trust, sometimes known as a perpetual trust, is structured to transfer wealth across multiple generations while benefiting from certain tax breaks. Keeping assets within the trust allows them to bypass the gift, estate, and generation-skipping transfer taxes that might otherwise apply.
The main distinction between a dynasty trust and a more conventional trust is its potential longevity. A dynasty trust is intended to safeguard wealth indefinitely, moving assets down the family line without a set end date.
What is an Advantage of a Dynasty Trust?
The primary advantage of a dynasty trust is its capacity to provide tax benefits. Under the Tax Cuts and Jobs Act, individuals can transfer up to $13.99 million ($27.98 million for married couples) into such a trust without incurring federal estate, gift, or generation-skipping transfer taxes, as a lifetime exemption. This allows for the preservation of wealth beyond the lifetime of the person who established it.
Additionally, because a dynasty trust holds the assets rather than the beneficiaries, it offers protection against claims from creditors or division in the event of a divorce, as the assets are not considered part of the beneficiaries’ estates.
How Does a Dynasty Trust Function?
Historically, the Rule Against Perpetuities put a cap on how long a trust could last, typically ending 21 years after the death of the last named beneficiary. However, changes in law have led many states to lengthen this period or eliminate it, paving the way for the creation of dynasty trusts that can endure for much longer periods.
Being an irrevocable trust, a dynasty trust is not subject to alterations or cancellations once established. The person creating the trust, the grantor, has the freedom to set the trust’s guidelines. After the initial funding, these guidelines cannot be modified, nor can the beneficiaries make changes, making careful planning of the trust’s terms crucial.
In setting up a dynasty trust, the grantor may opt to let a beneficiary act as their own trustee, which is a more relaxed approach to managing the trust. Commonly though, grantors choose a financial institution or bank to manage the trust. This appointed trustee then oversees the asset management and distribution according to the trust’s established rules. As beneficiaries pass away, their roles are taken on by the next generation, continuing the trust’s lifecycle.
So what else is there to dynasty trusts? Here we provide 4 additional things everyone considering establishing one should know:
Dynasty Trusts Aren’t Only for Large Estates
It’s a common assumption that smaller estates (those with less than a million dollars in assets) can’t justify dynasty trust protection. However, reduced dynasty trust protection can be provided for those who’d like to preserve portions of their estate for future generations.
Dynasty Trusts Don’t Last Forever (In Some States)
Some states don’t place limitations on trust duration, allowing the trust to continue passing from generation to generation indefinitely. Others, like Alaska, Maryland, South Dakota, Idaho, and Wisconsin, have done away with laws against perpetuities, which required the trust to end 21 years after the death of the last known beneficiary.
The Trustee for a Dynasty Trust Should be a Corporation
Because the purpose of a dynasty trust is to last throughout several lifetimes, many choose to designate a corporate trustee, such as a bank or an independent trust company, which will be able to serve as trustee for the entire lifetime of the trust.
A Charity Can Be a Beneficiary of a Dynasty Trust
Many people like to gift a portion of their assets to charity upon their passing. This can also be done in a dynasty trust. Incorporating a charity into a dynasty trust is relatively simple. For example, you can have your attorney include a provision that states that with every beneficiary’s passing, 20% of the trust’s assets will be donated to the charity of your choice.
| Topic | Key Details / Explanation | Example or State Comparison |
|---|---|---|
| Dynasty Trusts Aren’t Only for Large Estates | Dynasty trusts can be useful even for families with modest estates. They help preserve family wealth and protect assets from creditors, divorce, or mismanagement. | A $500,000–$1 million estate can fund a dynasty trust focused on education or housing for descendants. |
| Dynasty Trusts Don’t Last Forever (In Some States) | The Rule Against Perpetuities limits how long a trust can last, but many states have extended or eliminated this rule. | South Dakota, Delaware, and Alaska allow perpetual trusts, while New Jersey permits long-lasting trusts if drafted correctly. |
| The Trustee for a Dynasty Trust Should be a Corporation | Because dynasty trusts are meant to last for generations, a corporate trustee ensures continuity, professional management, and compliance. | Banks or trust companies are often chosen as trustees instead of individuals to provide long-term stability. |
| A Charity Can Be a Beneficiary of a Dynasty Trust | Dynasty trusts can include charitable giving provisions, such as donating a percentage of assets when beneficiaries pass away. | A dynasty trust can direct a portion of its assets to a chosen charity with each generation’s passing. |
New Jersey Trust Attorney
Christine Matus
Christine Matus, founder of The Matus Law Group, is a New Jersey attorney dedicated to helping families protect their future through thoughtful trust and estate planning. With decades of experience, she pairs professional knowledge with a strong commitment to community service. Her background includes:
- Bar Admissions: New Jersey & U.S. District Court of New Jersey (1995)
- Education: B.A., Economics – Rutgers University (1992); J.D. – Touro College Jacob D. Fuchsberg Law Center (1995)
- Leadership: Past President, Board of Directors – 21 Plus; Board of Trustees – Ocean County Bar Association
- Memberships: NJ State Bar Association, American Bar Association (Advisory Panel), Asian Pacific American Lawyers Association
- Community Service: Mediator – NJ Superior Court; Volunteer – Caregivers, Inc.; Board Member – Ocean County YMCA; Central Ocean County Rotary
- Publications & Speaking: Lectures on estate/special needs planning and nonprofit law; co-authored elder law articles published by the NY State Bar
How to Properly Fund Your New Jersey Dynasty Trust
Funding your New Jersey dynasty trust is one of the most important steps in the estate planning process. The trust only works if it is supplied with assets, and the way you transfer those assets determines how effective the trust will be for your family. You can fund a dynasty trust with a wide range of property, including cash, marketable securities, real estate, and even shares of a closely held business. Some families also transfer life insurance policies or interests in investment accounts, depending on their long-term goals.
Once you contribute assets, they no longer belong to you personally. Instead, they are managed by the trustee according to the terms you set when creating the trust. This means you cannot change the trust’s rules or take back the property later, so it is important to be thoughtful about both the trust provisions and the type of assets you use. If you have property that may appreciate significantly, placing it in the trust can maximize long-term benefits for future generations. On the other hand, highly personal property or items you may need access to later should generally not be transferred.
Because the trust is designed to last for multiple generations, funding it properly from the very beginning helps avoid unnecessary complications down the line. A clear funding strategy not only supports the trust’s purpose but also provides your heirs with a well-structured legacy that can serve them for decades.
Disadvantages to Consider with Dynasty Trusts
- Because Dynasty Trusts last through several lifetimes, a corporation is usually named as the trustee, which is most often accompanied by substantial administrative fees.
- The amount of wealth decreases with each generation.
- The longer the trust lasts, the less the beneficiaries are related to the decedent.
For many affluent families, a Dynasty Trust plays an integral part in their long-term, multi-generational planning. Establishing a Dynasty Trust allows you to have a certain amount of control over your hard-earned money even after your passing and frees your beneficiaries from overwhelming tax-related issues.
Bloodline Trust vs. Dynasty Trust
When planning for the future of your estate in New Jersey, understanding the differences between a bloodline trust and a dynasty trust is crucial for effective estate planning. Both types of trusts are designed to preserve wealth across generations, but they serve distinct purposes and offer different benefits.
A bloodline trust is focused on preserving wealth within a specific family lineage, often intended to benefit direct descendants like children and grandchildren. This type of trust is beneficial for guaranteeing that assets pass directly to your descendants, protecting the inheritance from potential claims by spouses from failed marriages or creditors of your beneficiaries. For example, if a beneficiary faces legal troubles or divorce, the assets within a bloodline trust are safeguarded and can only benefit the descendants of the original grantor.
On the other hand, a Dynasty Trust is designed for long-term wealth preservation across multiple generations. Unlike a Bloodline Trust, which may terminate after a few generations, a Dynasty Trust in New Jersey can continue for extended periods, leveraging the state’s favorable laws. Under New Jersey’s rule against perpetuities, trusts can last approximately 90 to 120 years, offering substantial opportunities for long-term wealth management and tax avoidance. Dynasty Trusts are often used to minimize estate taxes by removing assets from the taxable estate across generations, thereby maximizing wealth transfer within the family.
Choosing between a bloodline trust and a dynasty trust depends on your goals for asset protection, control, and tax planning. Bloodline trusts offer more focused control and protection for your immediate family, while dynasty trusts provide a long-term solution that benefits multiple generations. Consulting with a knowledgeable trust attorney in New Jersey can help you decide which trust aligns best with your estate planning objectives.
Let’s Get You Started Today!
If you have questions about establishing a dynasty trust, other kinds of trusts and wills, or any other New Jersey estate planning law questions or concerns, give the experienced legal team at The Matus Law Group a call. Contact us at (732) 785-4453 today!
