Should Texans Use a Dynasty Trust to Protect Wealth for Generations?

Reviewed by Attorney Kim Hegwood

Until 2021, the answer in Texas was usually not really. The state’s old version of the rule against perpetuities — which traced back to English feudal law and limited trust duration to “a life in being plus 21 years” — meant that Texas families who wanted true multigenerational trust planning had to set up trusts in other states. Delaware, South Dakota, Nevada, and Alaska had already abolished or extended their RAPs, and Texans who wanted dynasty planning sent the work (and the legal fees) out of state.

Then came House Bill 654, signed into law on June 16, 2021 and effective September 1, 2021. The legislation amended Texas Property Code §112.036 and replaced the old “lives in being plus 21 years” rule with a flat 300 years from the trust’s effective date for any trust that becomes irrevocable on or after September 1, 2021. With that change, Texas became a true dynasty trust state — and Houston families now have the legal authority to create a trust that can theoretically benefit their descendants for the next dozen generations.

The question of whether you should is more complicated than the question of whether you can.

What a Dynasty Trust Actually Does

A dynasty trust is an irrevocable trust designed to hold and manage family wealth across multiple generations without those assets being subject to estate tax, gift tax, or generation-skipping transfer (GST) tax at each generational transition. Properly structured, the trust assets pass from grandparent to grandchild to great-grandchild and beyond — all without triggering federal transfer tax at the children’s deaths, the grandchildren’s deaths, or any subsequent generation’s death until the trust eventually terminates.

The mechanism uses three federal tax exemptions in combination. The lifetime gift tax exemption allows the trust to be funded during the grantor’s life. The generation-skipping transfer tax exemption — separate from the estate and gift tax exemption — allows assets to pass to “skip persons” (grandchildren and beyond) without GST tax. Once the trust is properly funded with GST exemption applied, the assets remain outside the federal transfer tax system as they pass to subsequent generations, no matter how many generations the trust serves.

Under the One Big Beautiful Bill Act of 2025, the federal estate, gift, and GST tax exemption is $15 million per individual or $30 million per married couple effective January 1, 2026, indexed for inflation thereafter. A married couple can fund a dynasty trust with up to $30 million today (or more, as the exemption indexes) without paying any federal transfer tax — and that $30 million, if invested at a 6% net return, becomes more than $172 million in 30 years, more than $1 billion in 60 years, and growing tax-protected indefinitely. Compare that to the same assets held outside a trust, which would be subject to estate tax (40% above the exemption) at each generational transition.

For Texas families with substantial wealth and a long-term outlook, the math is hard to argue with.

Texas’s 300-Year Rule

The Texas RAP change deserves more attention than it’s gotten in the popular financial press. Most articles continue to repeat the conventional wisdom that Texans need to set up dynasty trusts in Delaware or South Dakota. That hasn’t been accurate since September 2021.

Under the new Tex. Prop. Code §112.036, an interest in a Texas trust must vest no later than 300 years after the trust’s effective date — defined as the date the trust becomes irrevocable. For a revocable living trust that becomes irrevocable at the grantor’s death, the 300-year clock starts then. For an irrevocable trust funded during the grantor’s life, the clock starts at funding.

Three hundred years is, for practical purposes, perpetual. The trust can serve roughly twelve generations. A trust funded by a 65-year-old today can theoretically benefit family members born in the year 2326. No one currently alive will be around to see the trust terminate.

There are two important Texas-specific footnotes.

1. First, the statute includes a 100-year alienability cap on real property held in trust — the trust instrument cannot direct that real property be retained or refuse that it be sold for longer than 100 years. This is an attempt to satisfy the Texas Constitution’s prohibition on perpetuities (Tex. Const. art. I, § 26), which the Texas Supreme Court interpreted in ConocoPhillips Co. v. Koopmann (2018) as protecting alienability rather than restricting remote vesting.
2. Second, there is a serious — though not yet fully tested — constitutional question about whether HB 654 conflicts with that constitutional provision. Most Texas estate planners believe the statute will hold up under judicial review based on the ConocoPhillips analysis, but the issue isn’t resolved.

For dynasty trust planning purposes, the practical takeaway is this: Texas now allows trusts that can functionally last for centuries. The legal foundation is meaningful, even if some constitutional questions linger.

When a Dynasty Trust Is Actually the Right Tool

The math we ran above — $30 million growing tax-protected for centuries — is real, but it doesn’t apply to most Texas families. Dynasty trusts are tools designed for a specific situation:

• Substantial wealth that exceeds the family’s spending needs. A dynasty trust requires the grantor to permanently part with the assets being placed in the trust. That works only if the grantor has more than they need — typically families with at least $5 million to $10 million in addition to what’s required to fund a comfortable lifetime.
• A long-term family outlook. The grantor has to actually want the assets to stay with the family for generations rather than being available to children outright. Some families want each generation to make its own way; for them, a dynasty trust is wrong philosophically. Other families want to create a “family bank” that supports descendants for centuries; for them, the structure fits the values.
• Concern about the children’s or grandchildren’s stewardship. Dynasty trusts shield assets from beneficiaries’ creditors, divorces, bankruptcy, and irresponsible spending. For a family with one child who’s likely to mishandle a large inheritance, the trust structure preserves the asset for the next generation while still providing for the child during their lifetime.
• Tax exposure that justifies the cost. A family well below the federal exemption doesn’t need a dynasty trust for tax reasons — the assets would pass to the next generation tax-free anyway. A family above the exemption (or expecting to be) saves substantial tax dollars across generations through dynasty planning.
• Tolerance for permanent, irrevocable decisions. Dynasty trusts are irrevocable. The grantor cannot reach into the trust to retrieve assets, cannot redirect distributions if they later disagree with the structure, cannot adapt the trust to changes in the family that they didn’t anticipate. The lock-in is real, and the planning has to anticipate decades of change.

For families that fit this profile, dynasty trusts are one of the most powerful tools in American estate planning. For families that don’t fit, simpler structures — revocable living trusts, generation-skipping trusts limited to children and grandchildren, or properly drafted lifetime gifting programs — usually accomplish what the family actually wants without the permanence and complexity of a 300-year structure.

How a Texas Dynasty Trust Is Structured

A typical Houston dynasty trust includes several core features:

An independent trustee with discretion over distributions. Family-member trustees create conflicts of interest and rarely have the institutional continuity to serve a 300-year trust. Most dynasty trusts use a corporate trustee — often a bank trust department or independent trust company — supplemented with a family-member or trusted-advisor co-trustee or trust protector who has authority to remove and replace the corporate trustee.

A trust protector with the power to amend administrative provisions, change the trust’s situs, modify distribution standards, and (in some structures) decant the trust to a successor trust if circumstances change. Without these flexibility provisions, a 300-year trust quickly becomes a fossil unable to adapt to changes in family, law, and the broader world.

Spendthrift provisions preventing beneficiaries from selling, pledging, or assigning their interest in the trust, and preventing the beneficiaries’ creditors, divorcing spouses, or bankruptcy trustees from reaching trust assets.

A discretionary distribution standard rather than a mandatory one. The trustee has authority to distribute for health, education, maintenance, and support (HEMS) — or, for greater asset protection, for purposes the trustee deems appropriate. Mandatory distributions create inheritance rights that creditors and divorcing spouses can attach.

Generation-skipping transfer tax allocation — the GST exemption must be properly applied at funding to ensure the trust qualifies as fully GST-exempt. A dynasty trust that didn’t use GST exemption at funding becomes subject to GST tax at each skip, which destroys the tax efficiency the structure was designed to deliver.

Coordination with the grantor’s overall estate plan, including the revocable living trust, marital trust planning, business succession structures, and any charitable planning.

Specific provisions for the assets being funded. A dynasty trust holding closely held business interests is structured differently from one holding marketable securities, which is structured differently from one holding family real estate. The trust instrument has to anticipate how the assets will be managed and what powers the trustee needs.

The Texas Choice: Stay Home or Go Out of State

Before HB 654, the conventional wisdom was that Texans wanting dynasty planning had to use a Delaware, South Dakota, or Nevada trust. Now that Texas allows 300-year trusts, the choice is more nuanced. The factors that still push some Texas families toward out-of-state dynasty trusts:

• Greater certainty. The constitutional question lurking under HB 654 hasn’t been definitively resolved. Other dynasty states have decades of established case law and unambiguous statutory authority. For families who want zero structural risk, an out-of-state trust still has appeal.
• Stronger asset protection statutes. Some dynasty trust states (notably Nevada, South Dakota, and Wyoming) also have favorable self-settled spendthrift trust statutes that Texas lacks. If the grantor wants both dynasty planning and self-settled asset protection in a single structure, an out-of-state trust may be necessary.
• Established corporate trustee infrastructure. South Dakota and Delaware have deep benches of corporate trustees specializing in long-term family trusts. Texas is catching up but still has fewer options.
• State income tax considerations. Dynasty trusts that accumulate income at the trust level pay state income tax based on the trust’s situs. Texas has no state income tax — which works in favor of Texas-situs trusts. But complex rules about which state’s income tax applies to a trust depend on factors beyond just the trust document, and proper analysis is required.

For most Houston families, a Texas-situs dynasty trust now makes sense for the simplicity of administration in their home state, the tax efficiency of Texas’s no-income-tax position, and the convenience of working with Texas-licensed counsel and Texas-located trustees. For families with very large estates, complex asset protection needs, or specific concerns about Texas’s RAP constitutionality, an out-of-state structure may still be the right call.

The Conversation to Have Before Funding

Dynasty trusts are not a transaction. They are a multi-generational commitment that requires the grantor to think hard about questions most families have never had to consider:

• What do I want for my great-great-grandchildren — people I will never meet, born to families I cannot imagine?
• What is the right balance between providing for my descendants and forcing them to make their own way?
• How do I write a trust instrument flexible enough to serve descendants whose lives I cannot predict?
• Who do I trust enough to manage these assets across generations? What institutional structures do I need to ensure continuity when no individual could possibly serve for the trust’s full term?
• What happens if the family I’m planning for changes radically — through choice, tragedy, or just the passage of time — in ways I cannot anticipate?

These questions don’t have clean answers. The role of a Texas estate planning attorney in dynasty trust work is partly drafting and partly facilitation — helping families think through what they actually want their wealth to do and then designing a structure that reflects those values.

When to Have the Conversation

For families with the wealth and the long-term outlook to make a dynasty trust appropriate, the planning window is whenever you have substantial assets, time before the next generation needs them, and the federal exemption available to fund the trust without triggering tax. Right now, that means $15 million per individual or $30 million per couple — exemption levels higher than they have ever been, indexed for inflation, with no scheduled sunset.

Whether the OBBBA exemption levels will remain in place through future Congresses is a separate question. Many estate planners believe the political durability of the high exemption is shorter than the statute suggests. Families who believe a dynasty trust is right for them generally don’t want to wait for the next legislative reset to find out whether the planning window is still open.

If you’re a Houston family with the wealth and the outlook to consider dynasty planning — and you’d like to know whether the structure actually fits your family — let’s schedule a strategy session. The first conversation is about understanding what you want your wealth to do and whether a dynasty trust is the right tool to do it.