What you should know if you’re considering a Texas dynasty trust

Posted by iLawyer on Feb 14th, 2023 Estate Planning, Firm News

Texas has been home to more than a few family dynasties – both real and fictional. However, in Sept. 2021, Texas law finally made it possible to establish dynasty trusts, also known as bloodline trusts. That’s something people in other states have been able to do for some time.

So just what is a dynasty trust? How does Texas’ law work? How can a dynasty trust keep your wealth in your family for generations? Let’s take a brief look.

What can a dynasty trust do for your family?

These trusts are for those who want to make sure that their wealth, whether it’s relatively new or goes back generations, remains in the family long after they’re gone. Under Texas law, a dynasty trust can last for up to 300 years.

A properly established dynasty trust is typically exempt from estate taxes, which means a big chunk of the assets doesn’t have to go to the government. A dynasty trust can also protect your assets from creditors and ex in-laws. 

These trusts can be set up to provide tax-exempt income or dividends to heirs through generations. They’re typically managed by a corporate trustee to help ensure that the assets in it are consistently and professionally managed for income or growth. 

Dynasty trusts are irrevocable. That means that once a dynasty trust is established, it can’t be modified by the grantor (the person who set it up) or anyone else.

What if you set up a trust before the 2021 law was enacted?

Prior to the 2021 law, Texas followed what’s called a “rule against perpetuities.” That means that the prior version of a Texas dynasty trust could be established to remain in place for 21 years following the death of the final family member who was alive at the time the trust was established. That means if you had an infant grandchild when you set up the trust, it could easily remain in place for more than a century. 

This just scratches the surface of everything there is to know about Texas dynasty trusts. If you’re interested in establishing one for your family or want to look at all potential options for preserving your family’s wealth, it’s crucial to have sound legal guidance.