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What is a dynasty trust?

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Quick Answer

A dynasty trust is structured to last multiple generations, possibly even in perpetuity. This type of trust allows money to accumulate without any direct transfer of assets to beneficiaries, saving estate taxes as each generation of beneficiaries dies and protecting assets from creditors, divorce settlements and fiscally irresponsible beneficiaries.

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Full Answer

Not all states allow perpetual trusts, which must be taken into account when creating the trust. A dynasty trust typically starts as an irrevocable trust for the benefit of one or more children or grandchildren. A trustee, such as a bank or trust company, manages the trust assets. Distributions of income or principal are paid to the beneficiaries under terms set out in the trust. To provide some flexibility to future heirs, beneficiaries can be given the authority to pass trust assets to another of the original grantor's descendants. The dynasty trust can continue or be terminated, a decision made by each generation of beneficiaries.

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