Dynasty Trust: Definition and How It Works in California

By Eric Ridley, attorney, Ridley Law. Updated October 2026.

A dynasty trust is an irrevocable trust built to hold assets for children, grandchildren and later descendants for as long as the law allows. Generation-skipping transfer tax exemption is allocated to it when it is funded, so the assets avoid estate tax as each generation dies.

How it works in California

Ridley Law’s dynasty trust guide has more. Each person has a generation-skipping transfer tax exemption equal to the estate tax basic exclusion amount (26 U.S.C. § 2631(c)), which is $15,000,000 for 2026 (Rev. Proc. 2025-32). Exemption allocated to the trust shields it from GST tax, and once made, an allocation can’t be undone (26 U.S.C. § 2631(b)).

California law limits how long a trust interest can stay unvested. Under the Uniform Statutory Rule Against Perpetuities, an interest is valid if it’s certain to vest or end within 21 years after the death of someone alive when it was created, or if it does vest or end within 90 years (Prob. Code, § 21205). A dynasty trust governed by California law is drafted around that limit. California also taxes a trust’s income when a trustee, or a beneficiary whose interest isn’t contingent, lives here (Rev. & Tax. Code, § 17742(a)), so the choice of trustee matters as much as the governing law.

Why it matters

Without a dynasty trust, wealth left outright is exposed to estate tax again when each child dies. Take a hypothetical. Parents put $15 million into a dynasty trust and allocate GST exemption to all of it. If it doubles twice over two generations, the $60 million it holds isn’t counted in the children’s taxable estates, and distributions to grandchildren don’t trigger GST tax.

Common mistakes

Not allocating GST exemption on a timely gift tax return, or allocating it carelessly, since an allocation is permanent. Naming a California trustee for a trust meant to accumulate income outside California. And giving a child a power over the trust broad enough to put the assets back into that child’s estate.

Related terms

• Spousal Lifetime Access Trust (SLAT): a SLAT can be drafted to continue as a dynasty trust after the spouse dies.
• Private Trust Company: a family-owned trustee some families form to run trusts meant to last generations.
• Crummey Power: withdrawal rights that let annual gifts to a dynasty trust qualify for the exclusion.
• Generation-Skipping Transfer Tax: the tax a dynasty trust’s exemption allocation is meant to avoid.
• Trust Protector: a role many long-term trusts use to adjust terms as laws change.
• Spendthrift Trust: the clause that keeps a beneficiary’s creditors away from trust assets.

Part of the California estate planning glossary. For the full treatment, see CA Dynasty Trusts: Benefits Guide 2026.