How does a multi-generational trust work in Texas?

What makes Texas law particularly suited to dynasty trusts?

Most states limit how long a trust can remain in existence through the rule against perpetuities, a common law doctrine that generally requires a trust to terminate within a defined period after its creation. Texas abolished this rule for trusts, which means a properly drafted trust created under Texas law can hold assets for an unlimited number of future generations.

This legal environment makes Texas one of a handful of states where a family can establish a trust today and, if they choose, have it continue to benefit great-grandchildren and beyond without restructuring.

The practical benefit is compounding. Assets held in a trust that never terminates never get distributed into a beneficiary's estate to face estate tax at that beneficiary's death. Over multiple generations, the tax savings can be substantial.

How is a multi-generational trust structured?

The person who creates and funds the trust is called the grantor (or settlor). At the grantor's death, the assets they contributed move into the trust without going through probate, because the trust owns the assets rather than the grantor personally.

The trust document names a trustee to manage the assets and sets out distribution standards. Common approaches include:

1. Mandatory distributions of income to a class of current beneficiaries (often children), with the remainder held for future generations.
2. Discretionary distribution standards that give the trustee authority to distribute principal for health, education, maintenance, and support, a standard broad enough to be useful but narrow enough to avoid having the beneficiary treated as the outright owner of the assets.
3. Spendthrift provisions that prevent a beneficiary from assigning their interest to a creditor before a distribution is actually made, providing a meaningful layer of creditor protection.
4. Staggered or delayed distributions, where beneficiaries receive a share of the trust principal at defined ages or milestones rather than in a lump sum.

What are the federal tax considerations for multi-generational trusts?

When assets skip a generation, the federal generation-skipping transfer (GST) tax may apply. The GST tax is a separate federal tax layered on top of the estate or gift tax, intended to prevent families from avoiding one round of estate tax by transferring assets directly to grandchildren.

Each person has a GST exemption. When a grantor funds a dynasty trust and properly allocates their GST exemption to that trust, distributions from the trust to grandchildren and later generations are not subject to the GST tax. This allocation is done at the time of funding, which is why the trust must be drafted and funded correctly from the outset.

Texas imposes no state estate or inheritance tax, so only the federal layer applies for Texas residents.

Who serves as trustee of a multi-generational trust?

Choosing a trustee for a trust intended to last generations is a different decision from naming a trustee for a standard revocable trust. An individual trustee who is close in age to the grantor may predecease the trust by decades.

Common approaches include naming a corporate trustee (a bank trust department or trust company) that has institutional continuity and professional investment management, naming a family member as co-trustee alongside a corporate trustee, or creating a trust protector role occupied by an advisor the family already knows, who has authority to remove and replace trustees.

The trust document can also give a trust advisory committee, composed of family members, authority to direct distributions within the trustee's discretion, which preserves family involvement without giving any one beneficiary direct control.

When should you speak with a Houston estate planning attorney about a dynasty trust?

This article provides general legal information, not legal advice. Whether a multi-generational trust is an appropriate structure depends on the size and composition of the estate, the family's goals, the ages of intended beneficiaries, and other factors specific to each client.

The estate planning attorneys at Edison Legal work with Houston-area families on trust structures ranging from standard revocable trusts to long-horizon dynasty trust arrangements. Request a planning consultation to discuss whether this structure fits your family's situation.