For most of Anglo-American legal history, the law made it hard to lock wealth into a family forever. The common-law rule against perpetuities forced trusts to terminate within roughly a century, on the theory that a free society shouldn’t let dead hands govern living ones indefinitely. Starting in the 1980s, a handful of states quietly repealed that rule to attract trust business. The result is a financial instrument that now lets billionaires pass wealth across centuries, exempt from estate tax at every generation.
Whatever your politics, this is a structural choice worth examining honestly.
What the trusts actually do
A dynasty trust is a long-duration vehicle, often perpetual, that holds assets for the benefit of an extended family line. Funded once with the lifetime gift-and-estate-tax exemption — currently in the millions per donor — the trust grows tax-free across generations and never gets reset by death. The generation-skipping transfer tax was supposed to backstop this, but the same exemption shelters those assets too. Compounded over a century at modest market returns, an initial transfer can grow into the billions while paying no further wealth-transfer tax. Heirs receive distributions controlled by trustees rather than outright ownership, which means creditors and divorcing spouses generally can’t reach the principal either. The trust becomes, in effect, a private legal entity outliving every individual in it.
Why the original rule existed
The rule against perpetuities wasn’t a quirky technicality law students complained about. It was an explicit policy choice. English courts and early American jurists worried that allowing wealth to be controlled indefinitely by deceased grantors would entrench aristocratic concentration, distort land markets, and remove property from productive use. Thomas Jefferson wrote about exactly this concern. The rule was imperfect and arcane, but its premise was sound: each generation should be able to redirect resources rather than execute the wishes of an ancestor they never met. State-level repeals in South Dakota, Delaware, Nevada, Alaska, and others didn’t happen because legal scholars rethought the underlying values. They happened because trust-administration fees are lucrative and small states figured out they could compete for the business.
The compounding problem
The math is what makes this corrosive. A $25 million transfer compounding at 6% real returns over 200 years grows past $3 billion in real terms — a sum that would dwarf the original fortune and persist regardless of whether descendants contributed anything. Multiply that across the small number of families using these vehicles aggressively and you get a slow concentration of capital that doesn’t reset, doesn’t get redistributed by death, and doesn’t depend on each generation’s productivity. Defenders argue the money is still invested in markets, which is true and beside the point. The question isn’t whether capital is deployed; it’s whether democratic societies should allow legal structures that exempt one bloodline from the recycling mechanisms applied to everyone else.
Bottom line
Dynasty trusts are a policy choice, not a natural feature of property law. Reinstating a federal cap on trust duration, or applying generation-skipping tax without exemption above some threshold, would restore something closer to the rule the legal system held for four centuries.
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