Is a Perpetual Trust Really Forever?
In theory, the concept of a perpetual trust allows assets to be passed down by families from generation to generation forever. However, state laws and other practicalities create a number of limitations on so-called dynasty trusts. Whether you’re looking to create an irrevocable trust or a revocable trust, it’s important to understand the limitations of each option as well as its potential benefits.
What Is a Perpetual, or Dynasty, Trust?
Perpetual trusts are sometimes called dynasty trusts. This is because the motivation behind them was often to keep assets and wealth within the bloodline of a family. The idea would be to pass down wealth from generation to generation, including property, monetary assets and investments, and other family heirlooms.
In some cases, the idea of a perpetual trust is also attractive to business, social, and charitable organizations. For example, someone who wants to leave a lasting legacy of philanthropy might create a perpetual trust meant to support a charitable organization for years — or even centuries.
Why Are States Putting Limits on Dynasty Trusts?
For a while now, various lawmakers and others have looked with suspicion upon these so-called dynasty trusts. In some cases, there is a concern that perpetual trusts can substantially reduce tax revenues for the federal government or in states that have an estate tax. Others argue that limiting the ownership of assets, and especially property such as land or buildings, to the same group of people for centuries is not conducive to a healthy or fair economy.
For a variety of reasons, including those mentioned above, lawmakers in various states have enacted limitations on perpetual trusts.
How Long Can a Perpetual Trust Last in Minnesota?
Minnesota allows dynasty trusts, but the law creates a simple limitation that prevents these trusts from lasting forever. This is known as a rule against perpetuities.
In Minnesota, a dynasty trust can only last until 21 years following the death of the last beneficiary who was alive when the trust was created. For example:
- A trust was created in 2000. The beneficiaries are aged 1, 13, and 30. They live, in order, for 92, 83, and 90 years total, putting their death years as 2090, 2070, and 2060. The trust would last until 2111, which is 21 years after the person who was 1 year old when the trust was created passed away. In this case, the trust existed for 111 years.
- A trust is created and adult beneficiaries are named. They are 30 and 35 years of age when the trust was created, and it was created in 2020. The younger of the beneficiaries is the last to die, and he passes away in 2080. In this case, the trust would end in 2101 and would have lasted 81 years.
- A trust was created in 2023 and named the following beneficiaries: a 40-year-old, a 50-year-old, and a 25-year-old. Each person lives to the following years, in order: 2070, 2043, and 2030. In this case, the person who lives the longest is the person who was 40 years old at the time the trust was created. The trust would end 21 years later, in 2091, having lasted 68 years.
Should You Create a Perpetual Trust?
As you can see from the examples above, while they don’t last literally forever, dynasty trusts can protect assets for more than a century depending on the beneficiaries and what happens to them in the future.
Some other potential benefits of these types of trusts include:
- Ensuring assets are available for multiple generations. These types of trusts can be designed in a way to protect your assets from the very beneficiaries you leave them to. For example, you might want to leave wealth to three adult children and ensure there is something left over for your grandchildren and great-grandchildren. But if one or more of those adult children is not responsible with money, they may need a bit of help to ensure that the assets are managed in a way that leaves something for future generations. A trust can help set those types of boundaries, even after you’re gone.
- Protecting assets against creditors. Trusts can also protect assets against the creditors of your beneficiaries. One person in your family line who runs up a large debt won’t destroy the legacy for those who come after them. Further, a trust can also provide protection against future spouses or other interested parties in the case of marriage and divorce.
- Reducing tax burdens on estates and heirs. Finally, a dynasty trust can provide some relief from tax burdens depending on how it is set up and what the value of the trust assets are.
Another reason many people choose trusts in general is to keep assets out of probate, and thus more confidential. Probate assets are in the public record, but assets in a trust are not.
However, dynasty trusts are irrevocable trusts. This means once you set them up, you may not be able to change them or change them easily. Before you enter into this type of legal option, you should carefully consider all your options and whether this choice is the right one for your goals and family.
Discussing the matter with an experienced Woodbury estate attorney, like the team at Stone Arch Law Office, and moving forward with their guidance and help is typically the best way to create trusts that meet your needs, support legal and tax requirements, and provide for your family and legacy long term.
To get started on a perpetual trust or any type of legacy planning, schedule a call with the Stone Arch Law Office. Our experienced legal team can help you understand to protect your future.
