People use a variety of instruments in their estate plans to achieve their goals. Each instrument has a different purpose and helps to hit your target in unique ways.
For example, a healthcare directive can provide instructions to your medical care team about what types of measures you want taken in case you are incapacitated. On the other hand, a last will and testament tells the court how you want your property distributed after you pass away. Trusts are another important tool that can be a good way to pass assets during or after your lifetime.
There are many types of trusts, but one type that has garnered much controversy are perpetual trusts.
Benefits of Perpetual or “Dynasty” Trusts
A perpetual trust, also called a dynasty trust, is one that is used to help pass along assets to beneficiaries many years down the line, even (theoretically) over a hundred years. The basic idea is that a perpetual trust does not cease to exist until twenty-one years after the death of the last-named beneficiary who was alive at the time the trust was created.
There can be several benefits to a perpetual trust. Like other trusts, a perpetual trust allows you to pass along assets outside of probate, reducing the time and financial resources necessary for your beneficiaries to expend to get the assets after you die.
One of the benefits that tends to appeal to trust creators the most with a perpetual trust is the ability to exert a degree of control over beneficiaries for a long time to come. With a trust, you can put a wide variety of conditions and restrictions in the trust, dictating how the money will be passed along and under what circumstances. With a perpetual trust, your restrictions could theoretically still be in place and operating a hundred years after you die.
Which States Allow Perpetual Trusts?
Many states have decided to disallow perpetual trusts, citing the common law principle of the rule against perpetuities, which prevents property from being held forever in a trust. Minnesota is one of only a handful of states that still allows perpetual trusts to be created, as most states have decided it contravenes public policy to allow property to be held forever by just one group of people.