You’ve worked hard, sacrificed your time, and achieved financial success. But do you have the necessary strategies in place to preserve your legacy for future generations?

Trusts are vital estate planning tools that can help safeguard your family’s wealth, promote growth and provide efficient transfer to your heirs.

Let’s explore the benefits of dynasty trusts, irrevocable life insurance trusts, and spousal lifetime access trusts—and how to select a favorable state to house them.

What Is a Dynasty Trust?

A dynasty trust is a long-term irrevocable trust that transfers wealth across generations while reducing estate, gift, and generation-skipping taxes (GSTT). Depending on its location, a properly structured dynasty trust can last indefinitely, potentially allowing your assets to grow for successive generations.

Advantages of Dynasty Trusts:

  • Tax Efficiency: For 2025, the lifetime estate, gift, and GSTT exemptions are $13.99 million per person or $27.98 million per couple.1 Assets in a trust are taxed only if they exceed these amounts at transfer. The assets transferred into a trust, along with any appreciation, are permanently removed from the grantor’s taxable estate.2
  • Asset Protection: Since the assets are owned by the dynasty trust rather than the grantor or beneficiaries, they are generally shielded from creditors, lawsuits, and divorce settlements.
  • Flexibility of Funding: Depending on your needs, you can fund a dynasty trust incrementally by gifting to multiple beneficiaries using your annual gift exclusion ($19,000 per individual for 2025)1 or with a lump sum gift. The latter must be reported on your gift and GSTT returns for the year in which gifts were made. Consider funding your trust with tax-free municipal bonds or non-dividend-paying stocks instead of income-producing assets like real estate or mutual funds to reduce the eventual income tax burden on your beneficiaries.3

What is an Irrevocable Life Insurance Trust (ILIT)?

An ILIT is a trust designed to own and manage a life insurance policy during the grantor’s lifetime. The trust funds are distributed to beneficiaries upon the policyholder’s death as directed in the trust document.

Advantages of ILITs:

  • Tax Efficiency: Transferring ownership of your life insurance policy to the ILIT removes it from your estate, reducing estate taxes. To help ensure the transfer qualifies for the annual gift tax exclusion, your trustee must create a Crummey letter that notifies the beneficiaries of their right to withdraw funds from the trust for a period of 30 days.5
  • Leverage Gift Exclusion: Your trustee can also use the annual gifts mentioned above to pay the premiums on the life insurance policy in the trust.
  • Control Over Insurance Proceeds: The terms of the ILIT enable you to dictate how and when the death benefit is distributed to your heirs. Policy proceeds can also cover estate taxes and other expenses, preserving more wealth for your children or grandchildren.

What is a Spousal Lifetime Access Trust (SLAT)?

Ideal for affluent married couples, SLATs are irrevocable trusts funded by one spouse (the donor spouse) for the benefit of the other spouse (the beneficiary)and potentially children or other descendants (the remainder beneficiaries) once the second spouse passes.

Advantages of SLATs:

  • Tax Efficiency: A SLAT can enable couples to remove assets from one spouse’s taxable estate (eliminating estate taxes) while efficiently leveraging their entire lifetime gift tax exclusion. Any appreciation of trust assets also occurs outside the taxable estate of the donor spouse who completed the gift.6
  • Access to Trust Assets: The beneficiary spouse can receive distributions from the trust to pay expenses as needed. This situation is unique in that, while still alive, the donor and beneficiary spouses can both potentially benefit from these distributions.
  • Control Over Inheritance: Depending on the language in the trust document, the beneficiary spouse may be permitted to adjust how trust assets will ultimately be distributed to the remainder beneficiaries. For example, as the second spouse, you may decide to leave the assets in the trust when you pass until your children reach the age of 21 or retain a financial advisor to help them manage a significant inheritance.

Choosing the Right Trust Jurisdiction

Choosing a state with favorable trust laws is critical, particularly when it comes to dynasty trusts. Typically, regulations depend on where the trustee resides rather than where you or your beneficiaries live. We recommend consulting with your attorney to help you choose a jurisdiction that aligns with your family’s unique situation. To help get you started, here’s a brief review of how states with progressive tax provisions stack up in different areas.4:

Trust Longevity: Dynasty trusts can exist indefinitely in Alaska, New Hampshire, and South Dakota, making them ideal for preserving generational wealth. Tennessee, Nevada, and Wyoming, on the other hand, have expiration dates of 360, 365, and 1,000 years. There is no expiration for dynasty trusts in Delaware that hold personal property, but those with real estate have a limit of 110 years.

Tax Benefits: Alaska, Nevada, South Dakota, Tennessee, and Wyoming do not have state income taxes, so they won’t be levied on income from trust assets. While Delaware has a state income tax, it exempts trusts with non-resident beneficiaries.

Trust Decanting: Decanting enables trustees to move assets between trusts to reflect changes in law or life circumstances. South Dakota, Nevada, and Tennessee have progressive decanting laws, with South Dakota offering extensive flexibility in modifications for dynasty trusts.

Asset Protection: Protecting assets from potential legal claims by creditors, business partners, family members, or ex-spouses is a critical concern. Alaska and Delaware have a 4-year period for creditors to review transfers into trusts for potential fraud, while South Dakota has the lowest period of just two years.

Final Thoughts

You’ve worked diligently to build your legacy—and Aaron Wealth Advisors understands the stakes involved in protecting and growing your wealth for future generations.

We can help you navigate the complexities and work with your attorney and tax professionals to create a comprehensive plan that leverages the right trusts, minimizes your tax burden, and aligns with your family’s needs and goals. Let’s connect.

Sources

1 https://www.irs.gov/businesses/small-businesses-self-employed/whats-new-estate-and-gift-tax
2  https://www.investopedia.com/terms/d/dynasty-trust.asp
3 https://www.schwab.com/learn/story/case-establishing-dynasty-trust
4 https://commonwealth-trust.com/best-state-to-set-up-your-trust/ |  https://www.firstdakota.com/news/why-south-dakota-is-the-best-state-to-house-your-trust#
5 https://www.investopedia.com/articles/personal-finance/092315/7-reasons-own-life-insurance-irrevocable-trust.asp
6 https://www.fidelity.com/learning-center/wealth-management-insights/protect-assets-with-a-SLAT

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*Aaron Wealth Advisors LLC is registered as an investment adviser with the Securities and Exchange Commission (SEC). Aaron Wealth Advisors LLC only transacts business in states where it is properly registered or is excluded or exempted from registration requirements. SEC registration does not constitute an endorsement of the firm by the Commission nor does it indicate that the adviser has attained a particular level of skill or ability. 

*This material is not intended to be a recommendation or investment advice, does not constitute a solicitation to buy or sell securities, and is not provided in a fiduciary capacity. The information provided does not take into account the specific objectives or circumstances or any particular investor or suggest any specific course of action. Investment decisions should be made based on an investor’s objectives and circumstances and in consultation with his or her advisors. The information contained in this presentation represents factual information, analysis, and/or opinions regarding various investments. Any opinions expressed in this material reflect Aaron Wealth’s views as of the date(s) indicated in the Presentation and are subject to change. 

*Past performance may not be indicative of future results. Therefore, no current or prospective client should assume that the future performance of any specific investment, investment strategy (including the investments and/or investment strategies recommended by the adviser), or product made reference to directly or indirectly, will be profitable or equal to past performance levels. 

*This document contains forward-looking statements, including observations about markets and industry and regulatory trends as of the original date of this document. Forward-looking statements may be identified by, among other things, the use of words such as ”expects,” “anticipates,” “believes,” or “estimates,” or the negatives of these terms, and similar express results could differ materially from those in the forward-looking statements as a result of factors beyond our control. Recipients of the information herein are cautioned not to place undue reliance on such statements. No party has an obligation to update any of the forward-looking or other statements in this document. 

*All investment strategies have the potential for profit or loss. The investment strategies illustrated in this document and listed above involve risk, including the risk of loss of principal. 

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