Example No. 1:
With the standard revocable living trust, a husband and wife usually leave all of their assets outright to their children equally when the surviving parent dies. If a child has creditors, the creditors will be able to attach their inheritance. If your children haven't learned how to manage their money, they could commingle the inheritance with a spouse and lose ½ of it in a divorce.

With a Dynasty Trust (which is meant to continue for generations) you can limit the possibility of both from occurring since your child never receives their inheritance outright (only payments). In the first example, the Dynasty Trust would be fashion such that a relative was appointed as the trustee of the Dynasty Trust. Since the trust is neither owned nor controlled by the child, the assets held in a dynasty trust cannot be attached by creditors and are not subject to division in the event of a divorce. The beneficiary receives a fixed annual sum (typically the interest earned on the assets placed in the trust), like a variable annuity, from the trust monthly, quarterly or bi-annually. If the beneficiary needs more money for "health, support, maintenance, and education", the trustee, in his or her sole discretion, can make additional payments to the beneficiary from the principal.

Example No 2:
Assume your trust presently provides that that all assets (after you and your spouse pass away) will be left equally to your two children. Assume further that your trust provides that until each of your children reaches the age of 25, the assets will be held (in separate shares) and managed by a relative. Until each child reaches age 25, the relative will manage your children's inheritance providing each child with what they think is necessary for each child's health, education, and support. As each child reaches the age of 25, the trust ends and the child receives his or her inheritance outright, subject to claims by her creditors and future community property claims from their spouses.

With a Dynasty Trust, you can provide an added layer of protection to your children's inheritance. Rather than giving each of your children ownership of their share at the age of 25, you can keep everything in a Dynasty Trust subject to the same rules (the manager may spend anything needed for the child's health, education, and support). The difference is that when each child reaches age 25, the child can be his or her own manager of his or her half of the Dynasty Trust. Under this plan, after you and your wife pass away, your relative will be in charge of the trust until each child reaches age 25; thereafter, each one of your children will become the sole Trustee for their respective half of the Dynasty Trust. Each child will determine how to invest or spend his or her own inheritance for whatever purpose.

You can also provide that the child is allowed spend principal for the health, education, and support of any of their children. Because the Dynasty Trust assets are to be passed to the grandchildren, your child again is not the owner of the inheritance. If your child is sued, the assets in the Dynasty Trust cannot be seized by creditors. If your child gets divorced, the spouse cannot claim a community property right over the assets held in the Dynasty Trust. When your child dies, whatever assets remain in the Dynasty Trust will go to your grandchildren (in Trust). However, under this second scenario, your child acts as his or her own trustee which in turn enables your child to spend whatever she or he believes is appropriate.