Dynasty Trust Planning Under the New Federal Estate-Tax Exemption

For nearly a decade, high-net-worth families were told that their estate-tax problem would be reconsidered in 2026. The doubled exemption enacted by the Tax Cuts and Jobs Act of 2017 was scheduled to expire at the end of 2025, and much of the estate-planning industry organized itself around a use-it-or-lose-it window that never actually closed. In July 2025, federal legislation permanently retained the higher exemption and set the 2026 federal basic exclusion amount at $15 million per individual, subject to inflation adjustments in later years. The planning question is therefore no longer whether to race a sunset that did not arrive. The planning question is what to do, calmly, under a durable framework.

This essay describes how a Texas family or business owner might think about dynasty trusts, lifetime gifting, portability, and business-succession coordination under the current law. It is not tax or legal advice for any individual. It is a description of the vocabulary.

The current federal framework

The federal basic exclusion amount is $15 million per individual for 2026, subject to inflation adjustments in future years. The generation-skipping transfer (GST) exemption is set at the same amount. A married couple, taken together and with proper planning, can generally shelter $30 million from federal transfer tax under current law. Portability — the election that permits a surviving spouse to use a deceased spouse's unused exclusion — remains available and is affirmatively worth considering as a default protective step even when a taxable estate looks improbable at the time of the first spouse's death.

The federal law can change. It has changed before. Any long-duration plan drafted under the current framework should assume periodic review and should avoid structures that depend on any single exemption number remaining fixed forever.

Who still benefits from a dynasty trust

Not every family with a taxable estate needs a dynasty trust. A dynasty trust is a long-duration irrevocable trust designed to hold appreciating assets outside of the transfer-tax system across multiple generations. Its principal virtues are (i) permanence, (ii) creditor protection, and (iii) freezing appreciation outside future estates. Its principal costs are irrevocability, complexity, and the loss of easy access to the transferred assets.

The families who tend to benefit most are those whose combined taxable estate meaningfully exceeds the couple-level federal exemption, whose primary assets are appreciating (closely held business equity, marketable securities, real estate), and who are genuinely comfortable letting go of a defined portion of that wealth in exchange for multigenerational protection. The families who do not tend to benefit are those whose estates comfortably fit within the couple-level exemption, whose wealth is illiquid and needed for ordinary living, or who are not psychologically prepared for the irrevocability of the instrument.

Structures worth understanding by name

The vocabulary of the field has not changed. Three structures continue to appear most often in serious conversations about multigenerational wealth planning:

• ·Spousal Lifetime Access Trusts (SLATs). A grantor spouse funds an irrevocable trust for the benefit of the non-grantor spouse (and, typically, descendants). The gift consumes exemption; the assets appreciate outside of both spouses' estates; and the non-grantor spouse retains indirect access via discretionary distributions. Reciprocal-trust doctrine remains the sharp edge — the two spouses' trusts must differ meaningfully in terms, timing, and trustees.
• ·Grantor Retained Annuity Trusts (GRATs). The grantor transfers appreciating assets in exchange for a fixed annuity for a term of years. Appreciation above the Section 7520 rate passes gift-tax-free at the end of the term. Rolling short-term GRATs remain the technique most often used to capture appreciation on volatile marketable securities.
• ·Sales to intentionally defective grantor trusts (IDGTs). The grantor sells appreciating assets to an irrevocable grantor trust in exchange for a promissory note bearing the applicable federal rate. The trust is a grantor trust for income tax (the sale is disregarded) but not for estate tax (the assets sit outside the estate). The grantor pays the income tax on trust income — a further transfer known as the 'tax burn.'

The planning question is no longer whether to race a sunset that did not arrive. The planning question is what to do, calmly, under a durable framework.

Where Texas law adds an advantage

Texas has no state-level estate tax and has quietly become one of the more favorable states for long-duration trust drafting:

• ·Rule against perpetuities. Texas permits a trust to endure for 300 years under Section 112.036 of the Texas Property Code. That is not the unlimited duration available in some states, but it is functionally three centuries — long enough for any reasonable dynastic purpose.
• ·Directed trust statute. Texas permits the trustor to bifurcate trustee duties — a trust protector may direct investments while a corporate trustee handles administration. This is particularly useful when the trust holds operating businesses.
• ·Community-property nuance. A Texas SLAT funded with community property requires careful marital-property planning. The gift is generally treated as one-half from each spouse. Consider a partition agreement to convert community property to separate property before funding — cleaner accounting, cleaner reciprocal-trust analysis.

Coordinating with business succession

For families whose principal asset is a closely held business, dynasty planning cannot sensibly be drafted apart from business-succession planning. The buy-sell agreement, the entity's governance documents, the funding source at death or disability, and the estate plan should be reviewed together, not in parallel. A carefully drafted trust that owns business equity subject to a buy-sell agreement drafted before the trust existed is a common — and avoidable — source of preventable disputes.

Where the operating business is the primary appreciating asset, structures like grantor-trust freezes, installment sales to IDGTs, and preferred-recapitalization freezes may all deserve consideration. Each has its own cost, its own drafting difficulty, and its own audit posture. None is universally correct.

Portability and the surviving spouse

Portability remains a genuinely useful default. A properly filed estate-tax return at the death of the first spouse may preserve millions of dollars of exemption that the surviving spouse would otherwise lose. It is filed even for estates below the federal filing threshold when the goal is to make the deceased spousal unused exclusion (DSUE) available to the survivor. For many married couples, the two most important estate-planning actions may be (i) executing a coordinated will/revocable trust, and (ii) filing the portability election at the first death.

A word on restraint

The temptation, in any era of large exemption, is to over-fund — to transfer more than the family will realistically feel comfortable transferring. The families who look back with the fewest regrets are, almost without exception, those who under-funded — who kept a comfortable cushion of taxable estate, who preserved liquidity outside the trust, and who left themselves room for opportunities and comforts that could not be predicted at the time of transfer.

Closing

Dynasty planning is a considered exercise, not a competitive one. Under the current federal framework, the families who will be well-served are those who begin the conversation with clarity about their own wealth, their own children, and their own comfort with irrevocability — and who then execute, on a comfortable timeline, in coordination with their business-succession and income-tax planning. Federal transfer-tax law can change; long-duration plans should be reviewed periodically with qualified legal and tax advisors.

— Darryl V. Pratt is the Managing Partner of Pratt Law Group, PLLC d/b/a Lone Star Counsel, an Attorney and CPA practicing in Frisco, Texas. This essay is provided for educational purposes and does not constitute legal or tax advice. For counsel on your specific matter, please request a conference.