LC-07 · Tax
Dynasty trusts
Wealth that outlives the rule against perpetuities
In ordinary words
In states that abolished the rule against perpetuities, a family can park assets in a trust designed to last for centuries, skipping estate tax at each generation.
Why people call it a crime
Inheritance taxes were supposed to break up fortunes every generation. A trust in the right state can keep the fortune intact for great-great-grandchildren. That reads, to many people, as a legal aristocracy.
A scene, not a hypothetical statute
A grandparent funds a trust in a state that allows perpetual trusts, allocates GST exemption, and the family distributes income for generations without a new estate-tax event at each death.
In legal terms
The federal generation-skipping transfer tax (IRC §§ 2601–2664) is aimed at skips, but the GST exemption lets a settlor allocate exemption to a long-term trust. States such as South Dakota, Nevada, Alaska, and Delaware permit perpetual or near-perpetual trusts and market them. State income-tax situs rules can add a second advantage.
Trust law is mostly state law. Congress taxes generation-skipping transfers but allows an exemption. Choosing a permissive state is planning, not evasion.
IRC §§ 2601–2664; state trust codes abolishing the rule against perpetuities.
Where it stops being legal
Transfers above available exemption are taxed. Self-settled trusts that leave the settlor with too much control can be pulled back into the estate. Sham transactions and hidden offshore accounts are a different matter.