Hidden Dynasties: Dynasty Trusts and the Concentration of Wealth

Dynasty trusts let wealthy families pass assets across generations outside the estate tax while binding heirs to the principal. We quantify their effect on US wealth concentration with a calibrated overlapping-generations model in which founding, funding and drawing on a trust are household choices. In general equilibrium, trusts raise the top 1% wealth share by 3.2 percentage points and the top 0.1% share by 3.1 points; calibrations that fit the data almost as well give 2.4 to 3.6 points. Trusts work by adding to saving, and four-fifths of the effect comes from the combination of the estate-tax shield and lock-in, so taxing trust wealth once a generation would remove most of it in the long run. Much of this concentration is invisible in official statistics. The Federal Reserve’s Distributional Financial Accounts count trust assets but, lacking data on who benefits, spread them across all holders of similar assets. Because the model knows every trust’s beneficiary, we can measure its wealth both ways. The official measure captures only a fifth to a half of the effect, and calibrating to it implies that the top 1% hold about 34.5% of US wealth, not the measured 32.5%. AI disclosure: The model code, calibration and experiment scripts were written and run with the assistance of Claude, an AI model made by Anthropic, working under the author’s direction. Claude also assisted in drafting and editing the text, and drafts were reviewed by separate AI model sessions. All modelling choices were approved by the author, who is responsible for the results. Code, data and decision log: https://github.com/nestegglab/hidden-dynasties