Generational or dynasty trusts are powerful estate planning tools that allow families in Indiana to pass wealth down through multiple generations while minimizing tax exposure and protecting assets from creditors or divorces. These trusts are designed to preserve family wealth for the long term, often extending far beyond the lives of the original grantors.
In Indiana, a dynasty trust can continue for up to 360 years, thanks to the state’s modification of the traditional rule against perpetuities. This makes Indiana an attractive jurisdiction for individuals and families who wish to establish long-lasting trusts that benefit children, grandchildren, great-grandchildren and beyond.
How do they work?
A generational trust works by holding assets—such as cash, real estate, business interests or investment portfolios—in trust for the benefit of named beneficiaries and their descendants. Instead of distributing the assets outright to heirs, the trust provides for distributions according to the terms set by the grantor. This might include setting limits on how much a beneficiary can receive annually or allowing distributions only for specific needs like education, health care or starting a business.
One major advantage of a dynasty trust is that the trust assets are generally not considered part of a beneficiary’s personal estate. This can help protect the assets from estate taxes, divorce settlements, creditors and lawsuits. It also allows the grantor to exert more control over how the assets are used long after their death.
Tax planning is another key benefit. While the federal generation-skipping transfer (GST) tax can apply to transfers made to grandchildren or more remote descendants, careful planning can help minimize or even avoid this tax. Indiana currently does not impose a state estate or inheritance tax, which further enhances the effectiveness of dynasty trusts for long-term planning.
Establishing a generational trust requires careful drafting and thoughtful consideration of family dynamics, financial goals and tax implications. For Indiana families looking to preserve wealth, support future generations, and create a lasting legacy, a dynasty trust can be an excellent solution.