A dynasty trust, also known as a GST, legacy or perpetual trust, is a flexible vehicle that can provide asset protection, wealth management and wealth accumulation for many generations, or even perpetually. In making contributions to a dynasty trust, an individual’s (or married couple’s) exemptions for gift taxes and generation-skipping transfer (GST) taxes are utilized to insulate trust assets and distributions against gift and estate taxes forever — a good way to protect family businesses and hard-earned family wealth against punitive taxes, divorce and frivolous lawsuits. When trust assets are invested in a life insurance policy, no income or capital gains taxes are paid on investment growth, and insurance proceeds pass income-tax free to the trust. Accordingly, trust assets invested in life insurance can grow and be distributed to beneficiaries completely free of taxes perpetually. As net policy proceeds are paid tax-free to the trust upon death of the insured, the trustee of the trust uses some or all the proceeds to buy a new life insurance policy on the life of a young trust beneficiary, and the cycle is repeated, indefinitely. A dynasty trust enables the grantor(s) to make a gift of financial security to future generations, to pass on family values, and to protect trust assets against creditors.

A dynasty trust can be drafted to implement the wishes of the grantor(s), while also giving the trustee(s) discretion and flexibility to adapt to changing legal, tax and family circumstances. An offshore trust may provide extra asset protection and investment options (e.g., offshore private placement life insurance (PPLI)). A domestic structure holding IUL, however, is usually well-suited for most purposes. Depending on circumstances, a life insurance dynasty trust can make economic sense for an individual or couple having a net worth of about $1 million or more.