Perpetual trusts are a potential risk for New York residents

by | Dec 8, 2014 | Trusts |

Estate planning is a complicated yet important component for individuals seeking to protect their life’s work and provide for their family’s future. On another page of our website we discussed how trusts are essentially tools which can be used to legally transfer assets to others. Most people who form trusts do so because they offer the grantor many tax advantages while also allowing the grantor to retain primary control over those assets.

Currently, a new trend is taking shape in estate planning circles in which grantors are forming trusts designed to last in perpetuity. The majority of trusts are intended to remain enforceable for about 100 years. These new types of so-called “perpetual trusts” envision legally binding documents which states must recognize for 1,000 years.

There are two primary advantages for having a perpetual trust. A grantor can avoid tax liabilities on assets as those funds pass from generation to generation without being taxed. Additionally, a grantor can specify that a beneficiary receives half of the trust when he or she reaches a specific age. That way the trust can continue earning interest indefinitely on the remaining assets left in the fund.

Critics of perpetual trusts argue that they will inevitably be contested by potential beneficiaries who may object to the terms of the trust’s distribution. States may also become embroiled in perpetual trust disputes during divorce proceedings. For example, which state should have jurisdiction in a Texas divorce where a woman is seeking marital assets from her husband’s trust, principally located in Delaware? According to one Harvard law professor, creditors in states where perpetual trusts are not allowed may seek legal actions to tap assets protected by perpetual trusts.

At present, there are nine states that allow perpetual trusts. Your New York estate planning attorney can assist you in evaluating your situation and determining a strategy best suited for your desired outcome.

Source: The New York Times, “The Ins and Outs of Trusts That Last Forever” Paul Sullivan, Dec. 08, 2014