Family Wealth: — Keeping It in the Family — How Family Members and Their Advisers Preserve Human, Intellectual, and Financial Assets for Generations, Revised and Expanded Edition

Chapter 21. Unexpected Consequences of a Perpetual Trust

During the last dozen years, many attorneys and financial splanners in the United States have recommended that their clients create perpetual trusts. These vehicles are frequently referred to as dynasty trusts. While there are a number of individual and family reasons that might impel an individual to create such a trust, in large measure the motivating factor has been to avoid the federal generation-skipping tax on the assets of trusts for later family generations.^[35]

This method of tax avoidance has created a cottage industry in perpetual trusts. This industry has now reached sufficient scale that a number of states interested in competing for this business have eliminated their rules against perpetuities to permit the creation of perpetual trusts within their boundaries. (In doing so, they joined a number of states that had never adopted this rule.) These new statutes are overturning some three-hundred-plus years of statutes and common-law precedents in England and America that were founded on the principle that trusts for individuals, as opposed to charities, should not be permitted to last indefinitely.

It is my observation that this emphasis on tax saving as the motive for the creation of perpetual trusts, and the resulting changes in statutory and precedentual law to meet this motive, have frequently obscured critical thinking by planners and trust founders on how the lives of the beneficiaries living within such trusts ...