A dynasty trust is a form of trust that is designed to sequester wealth for longer than ordinary trusts — sometimes for centuries or forever. They are often formed in U.S. states, such as South Dakota, that have suspended or altered their state “rule against perpetuities,” legislation that previously limited the lifespan of a trust.
Because the super-wealthy are avoiding or reducing their taxes, they are shifting the obligations to pay for society’s investments onto lower and middle-income households. Dynasty trusts also entrench existing levels of wealth inequality and facilitate the formation of dynastic concentrations of hereditary wealth and power.
In the Policy Brief, we recommend that lawmakers act at the federal level to shut down or discourage the formation of dynasty trusts for the purposes of tax avoidance and dynastic succession. Actions could include the passage of a federal “rule against perpetuities,” banning certain trust arrangements, and taxing income and wealth in trusts.