Vital Considerations for Perpetual Trusts

For families that have achieved wealth levels sufficient to want to leave a financial legacy for generations, a Perpetual Trust, also known as a Dynasty Trust, can be an incredibly beneficial planning tool.

However, there are a number of aspects that need to be taken into account when setting up a Perpetual Trust or your long-term plans may not be executed as you envision.

Where You Live is Critical

Not every state allows by law for the creation of Perpetual Trusts. In fact, only 22 states currently allow for a Trust to last indefinity. The remaining states either completely outlaw the practice, or have amended laws that cap the number of years the Trust can exist. So, if you intend to have the family fortune or estate be left for generations to come, where you live will be a mitigating factor in achieving this goal.

Every Last Detail Can Matter

A trust can be similar to any other contract, in that the creator of the trust can write in any rules and requirements of the agreement to satisfy the goal of the document and beneficiary, subject to of course law and the tax code.

However, when creating a Trust and articulating how exactly you want the assets to be used after you have passed, it pays to take your time and envision as many if-then scenarios that you can. Fully engaging both your attorney and your financial advisor and of course family will help avoid unintended consequences of your gracious gift being used in the wrong way.

Take for example the case of the New England Blueberry farm that was left to the owner’s family. The grantor, an attorney, did create a document well articulating who was entitled to use the large property as well as how the property could and could not be used. However, an oversight in creating of the Trust ended up creating strife between heirs. The Trust did not impose any rules and regulations and responsibilities of the beneficiaries when it came to maintenance and upkeep of the large and old set of buildings. Siblings, cousins and other entitled to use the beautiful property were left to their own judgement as to who should clean up, maintain and fix the place. It became a sore point of friction between those that were responsible and those that felt entitled, and the former had no legal power to enforce action on the latter.

Longevity of Trustees

If you believe your estate may last for many generations, it will pay to do a great deal of research on whom to appoint as Trustees of the Trust. Often Trust Companies are named to be an objective party to administer the agreement, but the staff of the Trust Company won’t live forever, so understanding the full history of the Trust Company is helpful to get a better sense of protection of your assets through the ages. This is especially true when the inevitable disputes between beneficiaries occur, when small and petty or litigious in nature. Corporate trustees are fiduciaries, so they are legally bound to work in the Trusts & Beneficiaries best interests.

With research, patience and involving your team of professionals, a Perpetual Trust may be the ideal solution to ensuring your generosity achieves its desired goal.

Related: Research Tools Every Investor Should Use