3 Things to Know About Perpetual Trusts
Categories
Perpetual trusts, also known as dynasty trusts, protect assets for the benefit of future generations. Some perpetual trusts are common trusts that allow multiple generations to benefit at the same time. Others distribute income and principal only to the oldest beneficiaries, then upon their deaths to the next generation.
Perpetual trusts are permitted in North Carolina as long as the trustee has the power to alienate (sell) trust property. Perpetual trusts can also be set up in a state other than where the trust creator resides. Our asset protection attorneys in Chapel Hill also serve Tennessee, which ranked in the Top 5 nationally for these types of trusts. For individuals interested in long-term wealth preservation, here is what you should review when considering perpetual trusts:
1. Multi-generational wealth. Perpetual trusts shield assets for creditors and taxes for multiple generations—in some jurisdictions potentially forever.
2. No distribution requirements. Some trusts impose provisions that require beneficiaries to take a specific amount annually, by a designated date, or when they reach a certain age. Perpetual trusts, however, generally do not have distribution requirements. If a beneficiary faces a judgment or lawsuit, they can elect not to take discretionary distributions, which would keep the funds from the reach of creditors.
3. Target of constitutional challenge. A recent controversial article in the Vanderbilt Law Review presents the case that perpetual trusts may violate the constitution in some jurisdictions where they are currently permitted. The article points out two threats to the future of perpetual trusts: Future beneficiaries and creditors. Each perpetual trust has its own distribution rules, and if beneficiaries do not care for the terms and want to access more than what is allowed – they could pursue litigation claiming the trust is unconstitutional. Creditors pursing significant debt may follow the same approach. Many practitioners disagree with the opinions expressed in the article – it remains to be seen what the future holds for perpetual trusts, but they seem to remain a safe bet at present.
Curious how states rank when it comes to perpetual trusts? Here’s the most recent list of the Top 5 States for Dynasty Trusts.