The true power of a Dynasty Trust isn't just avoiding taxes today; it's the compounding effect of avoiding 40% estate tax haircuts every 30 years as wealth passes from generation to generation.
The Mathematics of Compounding
When you input your initial funding amount and expected growth rate, the projector compares two scenarios over 100 years: an outright inheritance (taxed at each generation) versus a GST-exempt Dynasty Trust.
The Generational Haircut
Wealth = Principal * (1 + Growth)^Years * (1 - EstateTaxRate)^GenerationsIn an outright inheritance, the wealth is multiplied by 0.60 (assuming a 40% tax rate) every time a generation passes away, severely stunting long-term compounding.
Rule Against Perpetuities
Historically, trusts could not last forever due to the 'Rule Against Perpetuities.' However, many states (like South Dakota, Delaware, and Nevada) have abolished this rule, allowing Dynasty Trusts to theoretically last forever.
Tip
Situs Matters
You do not have to live in South Dakota to establish a trust there. You simply need to use a corporate trustee based in that state to take advantage of their favorable trust laws.