DC Dynasty Trusts
Shield generational wealth from taxation. A Washington DC dynasty trust is a perpetual trust created to pass wealth through generations without incurring transfer taxes.
DC Dynasty Trusts
Section: Investor Intel
Author: Susan Isaacs, Washington DC Real Estate Strategist
What Is A Dynasty Trust?
A dynasty trust is an irrevocable trust designed to pass wealth across multiple generations, potentially forever.
How Is It Used?
A Dynasty Trust can hold stocks and tax free municipal bonds, funds and other tangible assets such as precious metals, valuable artworks, and rare collectibles (whiich can include items such as antiques, fine rugs, jewelry and gems, stamps and coins), as well as insurance policies, and other long-term investments.
Because the assets of a dynasty trust are owned by the trust, not beneficiaries, assets aren’t included in beneficiaries’ taxable estates. As a result, creditors and divorce courts can’t touch the assets held by the trust.
The primary benefit of a dynasty trust, however, is its tax advantages. The 2017 Tax Cuts and Jobs Act (scheduled to sunset at the end of 2025) was a boon for dynasty trusts. The lifetime exemption for the estate tax basically doubled– currently (2023) $12.92 million for individuals and $25.84 million for married couples filing jointly. These sums can be transferred to heirs during life or at death without tfederal estate taxes. The annual limit on tax-free gifts also rose in 2023, to $17,000., $34,000 for married couples filing jointly. These gifts can be made to as many individuals as desired.
The Dynasty Trust is irrevocable, so it can’t be changed or ended before it’s stated termination date. The person establishing the trust has the absolute authority to set regulations of almost any type, as long as they’re legal.
Typically, dynasty trusts create distributions or the health, education and maintenance of beneficiaries. Rather than inheriting a lump sum or property, beneficiaries receive distributions in specified amounts for particular purposes.
How Is Real Estate Managed In A Dynasty Trust?
Asset Ownership & Transfer
To fund the trust, the grantor transfers the title of real estate portfolios or investment properties to the trust’s name, so the Trust legally owns the property.
Property Types, Use & Access
A dynasty trust can hold any type of real estate, including income-producing properties (see below), primary residences, vacation homes, and undeveloped land. It allows for long-term family control, asset protection, and tax efficiency across generations without probate. It also allows real estate holdings held by LLCs. Owning interests in an LLC allows for perpetual ownership, circumventing local property rules against forever trusts such as those in states like Delaware and the District of Columbia.
DC’s Forever Trust Restrictions
D.C. limits forever trusts (perpetuities) under its Statutory Rule Against Perpetuities, though it does offer extensions of duration through exclusions and the 90-year alternative.
Key DC Rules on Perpetuities
The 90-Year Window
DC’s primary rule (Code § 19-901) states that a non-vested property interest is invalid unless it vests or terminates within 90 years of its creation, or within 21 years after the death of someone alive when the interest was created.
Common Law Default
Without specific statutory updates allowing longer durations such as those some other states have for forever trusts, Washington DC generally follows the “Common Law Rule” or its statutory versions, which limit these indefinite durations.
Exclusions & Opt-Outs
D.C. law (DC Code § 19-904) provides exceptions, allowing trusts to opt-out of the statutory rule if the governing document allows it, and exempts certain charitable trusts or employee benefit plans, enabling much longer or potentially perpetual-like trusts in specific situations.
Are Investment Properties Well-Suited To ‘dynasty trusts’?
Because income-producing trust assets generate income taxes, income-producing real estate is not considered to be the best asset to include in a dynasty trust. This type of trust is best for family estates and other property that will be passed on to heirs, but not leased, flipped or sold to turn a profit. Non-income-producing assets are best suited to dynasty trusts.
Key Considerations for Real Estate in a Trust
Funding & Expenses
Ensure enough liquid assets (cash, investments) are in the trust to cover maintenance, taxes, and insurance for non-income-producing properties.
Tax Benefits
Real estate offers depreciation and opportunities for tax-deferred exchanges (1031 exchanges).
Liquidity
Complex properties can be illiquid, so balancing them with cash or securities is crucial.
Management
Decide if the trustee manages the property directly or hires a property manager.
The trust can establish clear rules for how family members may use each property fairly.
Income Management
For income-producing real estate (e.g., rental homes, commercial buildings, or farmland), the trust can distribute the generated cash flow to beneficiaries or reinvest it into the trust for further growth.
Strategic Family Bank
The trust can act as a “family bank,” loaning capital to beneficiaries for the purchase of their own residences or making direct investments in property they wish to buy.
Key Benefits for Real Estate Holders
Multigenerational Tax Shield
Assets are only subject to federal estate tax once, at the initial transfer to the trust. All future appreciation—even if a $10 million property grows to $30 million—remains outside the taxable estates of children and grandchildren.
Asset Protection
Because the trust owns the real estate, it is generally shielded from a beneficiary’s creditors, lawsuits, and divorce settlements.
Centralized Oversight
A professional or corporate trustee can manage complex real estate portfolios, ensuring professional stewardship and consistent management across generations.
Avoidance of Probate
Real estate held in a dynasty trust does not pass through probate court upon a beneficiary’s death, ensuring privacy and faster transition of management.
2025 Dynasty Trust Considerations
Exemption Limits: As of 2025, the lifetime estate and gift tax exemption is $13.99 million per individual. This high limit is scheduled to “sunset” on January 1, 2026, likely reverting to approximately half that amount unless Congress acts.
Loss of Control: Once real estate is transferred, the grantor cannot typically take it back or change the trust terms.
Income Tax & Step-up in Basis: Dynasty trusts do not typically receive a “step-up in basis” at the grantor’s death, meaning heirs may face significant capital gains taxes if the real estate is sold in the future.
State Rules: Not all states allow these trusts; laws regarding the Rule Against Perpetuities vary, with some states like Florida allowing trusts for up to 1,000 years.
Update December 2025
Many of the key provisions of the 2017 Tax Cuts and Jobs Act (TCJA) that were scheduled to sunset at the end of 2025 have been changed with passage of the One Big Beautiful Bill Act (OBBBA), signed into law on July 4, 2025. OBBBA made several once-temporary TCJA provisions permanent and introduced new temporary extensions.
Key Permanent Extensions (No Longer Sunsetting)
Tax Brackets
The seven federal individual income tax brackets (10%, 12%, 22%, 24%, 32%, 35%, and 37%) are now permanent.
Standard Deduction
The nearly doubled standard deduction is permanent and will continue to be indexed for inflation. For 2026, it is set at $16,000 for single filers and $32,000 for married filing jointly.
Estate & Gift Tax Exemption
The expanded lifetime exemption is permanent and will increase to $15 million per individual ($30 million for married couples) in 2026.
Personal Exemptions
These remain permanently eliminated.
Child Tax Credit (CTC)
The CTC has been made permanent and increased to $2,200 per child starting in tax year 2025.
New Temporary Provisions & Future Sunsets
While the 2025 law prevented the immediate 2026 “tax cliff,” it introduced new expiration dates for certain provisions:
SALT Deduction Cap
The $10,000 cap on state and local tax (SALT) deductions has been temporarily increased to $40,000 for tax years 2025 through 2029. It is scheduled to revert to $10,000 in 2030.
Senior Deduction
An additional $6,000 deduction for taxpayers aged 65 and older is available through 2028.
New Exemptions
Temporary tax exemptions for tips (up to $25,000) and overtime (up to $12,500) are effective from 2025 through 2028.
Bonus Depreciation
The gradual phase-out of 100% bonus depreciation continues, reaching 20% in 2026 and fully expiring in 2027.
What Never Had a Sunset?
The Corporate Tax Rate
The flat 21% corporate tax rate was made permanent in the original 2017 TCJA and remains unchanged.
Are There Any Drawbacks To Using A Dynasty Trust?
Yes, there can be some downsides:
Complex & Costly
Requires significant legal expertise to set up and maintain.
High Trust Tax Rates
The trust itself may face higher income tax rates than individuals.
Inflexibility
An irrevocable trust can fail to adapt to unforeseen future needs or family changes.
Who Uses Dynasty Trusts?
As you would expect, high-net-worth individuals and families seeking to preserve and grow wealth across generations utilize this type of trust.
Families wanting to ensure funds for education or other major life goals and events for many descendants may also turn to a dynasty trust for its protections.
Which States Amended Or Eliminated RAP?
States address “forever trusts” (dynasty trusts) with a spectrum of statutory strategies, either abolishing the traditional Rule Against Perpetuities (RAP) to permit perpetual duration, or enacting exceptionally long limits that sidestep its constraints. The choice of jurisdiction is now a central estate planning decision, as laws governing RAP vary widely—impacting wealth transfer, asset protection, and long-term tax minimization. Here’s a sample:
States Allowing Perpetual Trusts
Several states have abolished RAP entirely, offering the ability to create truly perpetual trusts.
South Dakota is widely regarded as a leader in this respect: it was the first state to eliminate RAP, allows unlimited trust duration, and boasts cutting-edge advantages in privacy protection and flexibility (Macpas, Stuart Green Law).
Alaska also permits perpetual trusts, having opted out of RAP outright (Wealth Management, Trust & Will).
New Hampshire, Illinois, Ohio, Rhode Island, and Wisconsin all allow either perpetual or near-perpetual trusts (Trust & Will, Wealth Management).
The Delaware Hybrid
Delaware offers a perpetual trust option for intangible and personal property, but applies a 110-year limit to interests in real estate. Advanced planning strategies commonly wrap Delaware real property in an LLC or partnership, so the trust can own “personal property” interests that last perpetually, essentially bypassing the statutory limitation (MoreThanCLE).
States Allowing Very Long, But Not Perpetual, Trusts
Some of the most trust-friendly states set multi-century statutory durations, delivering, for practical purposes, “dynasty” capabilities:
Wyoming: 1,000 years (Commonwealth Trust).
Colorado: 1,000 years (EMALegal Table).
Florida: 1,000 years for trusts created after 2000 (Northern Trust).
Nevada: 365 years (Wealth-Counselors, Stuart Green Law).
Tennessee: 360 years (Commonwealth Trust).
States With Modified RAP
Still others use updated statutory models. For example, California adheres to a 90-year limit per the Uniform Statutory Rule Against Perpetuities (USRAP), which, though not perpetual, is long enough for multi-generational planning (Vistas Law Group).
Key Planning Factors
Tax Benefits: Dynasty trusts are structured to shelter assets from repeated estate and generation-skipping transfer (GST) taxes, potentially keeping wealth outside of taxable estates for centuries (Investopedia).
No State Income Tax: Trust-situs choice is often driven by income tax treatment. States like South Dakota, Alaska, and Nevada don’t tax undistributed trust income, maximizing tax-deferred growth (Commonwealth Trust, Raymond James).
Trustee Location: The situs (legal home) of a trust is most commonly determined by the trustee’s location. Using a professional or institutional trustee in a top-tier trust jurisdiction is key to ensuring ongoing access to favorable statutes (Bridgeford Trust).
Summary Table:
Perpetual: South Dakota, Alaska, New Hampshire, Illinois, Ohio, Rhode Island, Wisconsin, Delaware (personal property)
1,000 Years: Wyoming, Colorado, Florida
365–360 Years: Nevada (365), Tennessee (360)
Hybrid: Delaware (real property limited to 110 years unless held via entity interest)
Many of the leading trust jurisdictions abolished RAP to embrace perpetual or quasi-perpetual trusts, positioning themselves as favored sites for dynasty trust planning.
Delaware’s hybrid approach (perpetual for personal property, statutorily limited for real estate but with commonly used entity solutions), underscores the sophistication and complexity of state-by-state trust law differentiation. Careful situs and trustee selection, factoring in tax, privacy, and asset protection, is critical for those seeking optimal multi-generational trust structures.
I am not a tax pro or estate planning expert, and laws may change, so please consult one or both when considering a perpetual trust option.
How To Set Up A Dynasty Trust
Hire a tax and estate planning expert who will help you research the rules in your state or the District of Columbia. Generally, you’ll follow these basic steps to structure your dynasty trust:
Draft the trust document
Fund the trust
Select beneficiaries
Determine distribution
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Wow, the part about these trusts being irrevocable really stood out to me. It's such a complex financial mechanisim you explain so clearly. I'm curious, how do current regulations address the long-term, multi-generational impact on wealth distribution, especially with the "potentially forever" aspect?