Legacy trust: Planning intended to continue wealth for generations

Perhaps you own a family business that you hope will benefit your great-grandchildren and beyond. Or maybe you own a portfolio of investment real estate in a closely held entity that could generate a stable income stream for your descendants well into the future. If you have ever dreamed of creating a legacy for multiple generations— while helping minimize taxes and other factors that could deplete valuable assets over time — a legacy trust could be worth considering.

A legacy trust, also known as a dynasty trust, is an irrevocable trust meant to help protect your wealth and provide benefits for multiple generations of your family while potentially minimizing the impact of state, estate, and transfer taxes.

“These trusts can facilitate the continuation of family wealth and transition the assets across multiple generations,” explains Nancy Anderson, Senior Wealth Strategist with Wealth & Investment Management, Wells Fargo Bank, N.A. “They can last indefinitely, depending on the state’s laws and the trust structure and as long as there is property in the trust. They also help protect valuable assets from federal estate transfer taxes while allowing them the potential to appreciate within the trust.”

Here’s what to know about these trusts — and why a legacy trust might be worth considering sooner versus later.

The how and why of legacy trusts

A legacy trust can hold a wide variety of assets, from traditional investment portfolios to specialized assets such as real estate, family businesses, closely held business interests, and oil and gas interests. You can even fund the trust with just cash.

“Our high-net-worth clients often create numerous trusts, and a legacy trust can be a great compliment to their estate plan to transition wealth beyond the second generation” says Anderson, “In my experience, legacy trusts are usually funded with their most important and growing assets, and clients often use their wealth transfer tax exemptions to fund them.”

In 2025, the lifetime gift/estate tax exemption is $13.99 million per person or $27.98 for a married couple. However, that amount is scheduled to decrease on January 1, 2026. See more on that below.

One of the benefits of a legacy trust is that assets inside the trust may appreciate without being subject to wealth transfer taxes, so you could end up protecting a far greater portion of your estate over time. “To help preserve and build wealth in the trust, it is most appropriate to select assets that offer high potential appreciation and little or no transfer tax value today,” says Anderson.

Legacy trusts and upcoming tax changes

Current laws governing wealth transfer tax exemptions is scheduled to sunset on December 31, 2025, returning the federal wealth transfer exemptions to $7 million (adjusted for inflation) per individual. That change will significantly impact the tax-exempt amount that can fund a legacy trust.

“High net worth clients considering a legacy trust have to make a decision to implement advanced estate planning techniques this year and utilize the high federal gift tax exemption before it is scheduled to be cut in half in 2026” says Anderson, while noting that legislators could decide to extend the current exemptions.

Anderson says that it could be a mistake to wait to see if there will be an extension to the current exemptions before creating a legacy trust. “They are complex agreements drafted by competent and busy estate planning attorneys and it can take a long time to transfer assets into the trust,” she says. “Therefore, if an investor has a net worth high enough to take advantage of today’s exemptions, they may want to consider beginning the process now instead of waiting until 2026.”

Before you sign: Three legacy trust considerations

Legacy trusts can offer tax benefits, but they also bring a lot of legal and financial complexity to the estate planning process. “We want to make sure these trusts are as flexible as possible, because they’re intended to last a really long time,” says Anderson.

Here are some features to help determine whether a legacy trust may be right for you.

1. Legacy trusts are irrevocable.Assets placed within the trust are owned and managed by the Trustee of the trust. “You have to be prepared to let go of the actual ownership of the business or the property, even though the family still has a certain amount of accessibility, and the grantor may appoint one or more trustees to manage the trust,” says Anderson.
2. Legacy trusts can be flexible. Even though legacy trusts are irrevocable, they can be written to accommodate changing circumstances that may occur over time. “For example, you can position your trust so that if the laws change in one state, you can move the trust to another jurisdiction,” says Anderson.
3. Legacy trusts can be specific. In addition to helping protect assets from wealth transfer taxes, legacy trusts give you an opportunity to express your intent as to how or when beneficiaries may obtain trust benefits. Anderson says, “You could include provisions designed to provide educational benefits to your grandchildren and more remote generations. Or you could permit distributions to help a beneficiary purchase their first home or start a new business.”
4. Choosing a trustee is important: “The administration of a dynasty trust will require an experienced trustee to administer and manage the trust. A trust company may make sense due to the longevity of the trust and its fiduciary responsibilities” says Anderson.

In other words, your legacy trust can be tailored according to your wishes while avoiding estate and generation-skipping transfer taxes, effectively.  And while it can take time to ponder the details, the results can be worth it and future generations may thank you for your efforts.