Should I Create a Dynasty Trust to Benefit Multiple Generations?

Most trusts are temporary. They distribute their assets within a generation or two, and whatever is left gets handed outright to beneficiaries, where it becomes exposed to creditors, divorce, and estate taxes all over again.

A dynasty trust is designed to break that cycle. It holds and grows assets across multiple generations, shielding wealth from transfer taxes at every step. But it is not for everyone.

What Is a Dynasty Trust?

A dynasty trust is an irrevocable trust designed to last for as long as state law allows. Unlike a standard trust that terminates when a beneficiary reaches a certain age or milestone, a dynasty trust can continue for generations.

The core benefits:

• Avoids estate tax at every generation. Assets inside the trust are not included in any beneficiary’s taxable estate. Wealth passes from grandchildren to great-grandchildren and beyond without triggering federal estate or gift taxes.
• Shields assets from creditors. Because the trust, not the beneficiary, owns the assets, creditors generally cannot reach them. This includes protection in divorce, lawsuits, and bankruptcy.
• Maintains family values and control. The trust document can include incentive provisions, distribution standards, and guidelines that reflect your wishes for how future generations use the wealth.

In practical terms, a dynasty trust acts as a permanent family vault. The beneficiaries can receive income, distributions for health and education, and other support, but the principal stays protected inside the trust.

How Long Can a Dynasty Trust Last in Washington and Idaho?

This depends entirely on state law, and the answer is dramatically different on either side of the Snake River.

Washington allows trusts to last up to 150 years from the effective date under RCW 11.98.130. That is long enough to benefit five or six generations, but it is not perpetual.

Idaho has abolished the Rule Against Perpetuities entirely under Idaho Code § 55-111, which states plainly that “there shall be no rule against perpetuities applicable to real or personal property.” A properly drafted Idaho dynasty trust can effectively last forever, making Idaho one of the most favorable jurisdictions in the country for multigenerational wealth planning.

By comparison:

• South Dakota, Alaska, and Nevada have similarly abolished the Rule Against Perpetuities, allowing trusts to last indefinitely.
• Delaware allows perpetual trusts for personal property but limits real estate held directly in trust to 110 years under 25 Del. C. § 503. This limitation is commonly worked around by holding real estate inside an LLC owned by the trust.

For Washington residents who want truly unlimited duration, your attorney may recommend establishing the trust in Idaho or another perpetual-trust jurisdiction.

Idaho is often the most practical option for clients in our region because there is no Idaho estate tax and the legal infrastructure is familiar to attorneys licensed in both states.

How the Generation-Skipping Transfer Tax Works

Without special planning, the IRS imposes a generation-skipping transfer (GST) tax when assets skip a generation, for example, when a grandparent leaves money directly to a grandchild.

The GST tax rate is a flat 40% under IRC § 2641, applied on top of any estate or gift tax. That means assets that skip a generation without proper planning can face a combined effective federal rate of approximately 64%, before any state estate tax is added.

To prevent this, every individual has a GST tax exemption:

• 2026 GST exemption: $15 million per person ($30 million for married couples), per IRS Rev. Proc. 2025-32
• The exemption was made permanent by the One Big Beautiful Bill Act (OBBBA), P.L. 119-21, signed July 4, 2025
• The GST exemption is not portable between spouses. If one spouse dies without using their exemption, it is lost.

A dynasty trust is specifically designed to absorb the GST exemption. You fund the trust with up to $15 million (or $30 million as a couple), allocate your GST exemption to it, and the assets inside the trust grow and distribute to future generations entirely free of transfer taxes.

What Are the Drawbacks?

Dynasty trusts are powerful, but they come with real limitations:

Irrevocable. Once funded, you cannot take the assets back or change the fundamental terms. Built-in flexibility mechanisms like trust protectors and decanting provisions can help, but the core structure is permanent.

Compressed income tax rates. Trust income that stays inside the trust is taxed at the highest federal rate (37%) on income above $16,000 in 2026, per Rev. Proc. 2025-32. Distributing income to beneficiaries in lower tax brackets can offset this, but it requires active trustee management.

Administrative complexity over time. As generations multiply, the trust may need to split into separate sub-trusts for different family branches. Each sub-trust requires its own accounting, tax filings, and trustee oversight.

Cost. Professional trustee fees, legal counsel, and tax preparation add up over decades. A dynasty trust makes financial sense only if the assets being protected are substantial enough to justify the ongoing expense.

No step-up in basis. Unlike assets that pass through a taxable estate, assets inside a dynasty trust generally do not receive a stepped-up cost basis when a beneficiary dies. This means capital gains taxes could be significant when trust assets are eventually sold.

Who Should Consider a Dynasty Trust?

A dynasty trust is not a standard estate planning tool. It is designed for families with significant wealth who want to preserve that wealth across multiple generations.

A dynasty trust makes sense if:

• Your estate exceeds or is approaching the federal estate tax exemption ($15 million per person in 2026)
• You want to protect family wealth from creditors, divorce, and lawsuits across generations
• You are concerned about the “trust fund” effect and want to include incentive-based distribution standards
• You want to use your GST exemption strategically before potential future legislative changes
• Your family has a multi-generational business, investment portfolio, or real estate holdings worth preserving

A dynasty trust is probably not right if:

• Your estate is well below the federal exemption threshold
• You prefer simpler estate planning structures
• You are uncomfortable with the loss of control that comes with an irrevocable trust

Washington Estate Tax Considerations

Even though a dynasty trust primarily targets federal estate and GST taxes, Washington’s state estate tax adds another layer of planning.

Effective July 1, 2026, Washington’s estate tax framework simplified:

• WA estate tax exemption: $3 million (flat, not indexed for inflation)
• WA estate tax rates: 10% to 20% (top rate)
• No portability between spouses for the state exemption

For Washington residents with estates above $3 million, combining a dynasty trust with other planning tools, such as a credit shelter trust or QTIP trust, can help maximize both the federal and state exemptions. Idaho residents do not face a state estate tax, which is one of several reasons Idaho is often the preferred jurisdiction for multigenerational wealth transfers.

For current filing thresholds and rate tables, see the Washington Department of Revenue estate tax tables.

Build a Legacy That Lasts

A dynasty trust is one of the most effective tools for preserving family wealth across generations. But the drafting must be precise, the funding must be strategic, and the trustee selection must account for decades of administration. Choosing the right jurisdiction, Washington, Idaho, or another state, can also have lasting consequences for how long the trust survives and how much wealth it can shelter.

If you are considering a dynasty trust and want to understand how it fits into your broader estate plan, contact McKarcher Law to schedule a consultation.