What Is a Perpetual Trust and How Does It Work?

What exactly is a perpetual trust, and how does it work? Trust & Will explains what you need to know about this advanced estate planning tool.

By Craig Parker

Assistant General Counsel, Trust & Will

There are a variety of estate planning tools designed to help you meet your goals. You might start with a basic estate plan that includes a Last Will and Testament and a Revocable Living Trust to cover yourself and your immediate family. As time goes on, you might take advantage of more sophisticated measures, like an Advance Health Care Directive, to provide specific instructions about your medical care.

In this guide, we're going to talk about one such sophisticated estate planning tool: the perpetual trust. Keep reading to find out what this type of trust does, how it works, who it's right for, and answers to the questions you're sure to have.

Please note: Perpetual trusts are a highly specialized estate planning tool intended for a small number of high-net-worth families with multi-generational wealth transfer goals. They are not offered by Trust & Will and are not the right fit for most people. This guide is provided for informational purposes only, to help you understand what perpetual trusts are and how they work.

What Is a Perpetual Trust?

A perpetual trust is an irrevocable trust designed to pass wealth through multiple generations indefinitely. Unlike traditional trusts that expire after a set period, perpetual trusts can theoretically last forever, or at least for centuries.

Families use these trusts to avoid probate and protect their legacy from estate taxes. The trust preserves wealth by keeping assets within the family structure rather than distributing everything at once.

Note that perpetual trusts are also often called dynasty trusts; the two terms are used interchangeably.

How Does a Perpetual Trust Work?

Perpetual trusts operate differently than standard trusts. The trustor sets specific rules for how assets are managed and distributed across generations.

Key features include:

Flexible distributions: Assets typically aren't distributed all at once; often only income or dividends are paid out
Generational planning: Benefits can continue for centuries as long as assets remain in the trust
Professional management: Many families assign professional trustees to handle investment decisions

Note that the trust does not necessarily have to make distributions either. The trustor (the person who set up the trust) can create a rule such that distributions are not made if the named beneficiary in question is going through turbulent times. The trustee would be tasked with making these decisions based on the provided set of rules.

Is a Perpetual Trust Irrevocable or Revocable?

Perpetual trusts are irrevocable. Once you fund them, you can't take the assets back. This makes careful planning essential before you commit.

However, the trust can still be flexible through trustee powers. You can design the trust to give trustees discretion over distributions and asset management decisions.

Benefits and Advantages of Perpetual Trusts

A perpetual trust offers several key benefits for those looking to create a lasting legacy. It's more than just a legal document; it's a strategy for long-term family security.

Generational wealth transfer: Pass wealth through multiple generations for decades or centuries
Asset protection: Shield assets from creditors, lawsuits, and beneficiaries' financial mistakes
Tax minimization: Reduce estate, gift, and generation-skipping transfer taxes
Legacy control: Set specific terms for distributions that align with your values

Which States Allow Perpetual Trusts?

Anyone interested in setting up a perpetual trust should know that it may or may not be allowed in certain states. This is due to the traditional Rule Against Perpetuities, which requires that interests in property must vest within the lifetime of someone alive when the trust was created, plus 21 years (often expressed as "lives in being plus 21 years"). States that follow this traditional rule do not allow perpetual trusts. We'll expand upon the legality of perpetual and dynasty trusts in the next section.

For now, note that the top states for perpetual trusts are Alaska, Delaware, Nevada, and South Dakota. These states are widely considered the most favorable jurisdictions for dynasty trusts because they also don't impose state income taxes on trust assets.

Here are some of the U.S. states that allow truly perpetual (indefinite duration) trusts:

Alaska
Delaware (for personal property; real property is capped at 110 years)
New Hampshire
New Jersey
South Dakota

Additionally, the following states allow very long-term trusts with specific duration limits:

Florida (1,000 years for trusts created on or after July 1, 2022)
Nevada (365 years)
Tennessee (360 years)
Texas (300 years)
Wyoming (1,000 years)

Many other states have adopted the Uniform Statutory Rule Against Perpetuities (USRAP) or a similar rule, which typically allows trusts to last around 90 years. A small number of states still maintain more restrictive versions of the traditional Rule Against Perpetuities.

Because state laws vary significantly and change over time, it's important to confirm the specific rules that apply to your situation before setting up a perpetual trust.

Are Perpetual Trusts Illegal?

In the previous section, you may have picked up on the sense that the legal stance on perpetual trusts differs from state to state. While they are not illegal, per se, they have been disallowed or restricted in several states.

Perpetual trusts are a bit controversial because there is one school of thought that it's a tool used strictly by wealthy families to hold property in a trust "forever" without having to be taxed. Thus, many states abide by the Rule Against Perpetuities, which requires that interests in property must vest within the lifetime of someone alive when the trust was created, plus 21 years. This is often expressed as "lives in being plus 21 years," meaning the trust must terminate within 21 years after the death of the last person who was alive at the time the trust was created.

However, perpetual trusts don't always have to be used only by the wealthy, and as a scheme to avoid taxes forever. Any family can make use of a perpetual trust and benefit from it, as long as it's allowed in their state. It can simply be a tool to help provide modest financial support for more than one generation, such as their children, grandchildren, and their grandchildren's children.

In summary, perpetual trusts are not illegal. Just be sure to double-check that one is allowed in your state.

Important Considerations and Potential Drawbacks

While powerful, perpetual trusts aren't the right fit for everyone. It's important to weigh the benefits against the potential downsides before making a decision.

Irrevocable nature: As mentioned, these trusts are irrevocable. Once you fund the trust, you generally can't take the assets back. This requires careful thought to ensure you don't need those assets later in life.
Complexity and cost: Setting up and maintaining a perpetual trust is more complex and typically more expensive than a standard Revocable Living Trust. There are ongoing administrative duties and potential fees to consider.
Loss of flexibility: While you set the rules, the future is unpredictable. A structure that makes sense today might be less ideal for your great-grandchildren a century from now.

Is a Perpetual Trust Right for You?

Although creating a perpetual trust used to be tricky, more and more states have either repealed or made changes to the Rule Against Perpetuities, which makes it possible to create one. Some states put a cap on how long a trust can exist. Although it's not forever, a perpetual trust can often benefit future generations for hundreds of years down the line.

Now that several states allow truly perpetual trusts, and many others permit very long-term trusts, you could consider using them as a tool to build your legacy.

First, find out whether or not you live in a perpetual trust state. That's a practical first step. Then, get clear on your financial goals. Are you mainly interested in planning for your own life, your partner's life, and your children's lives? Then a perpetual trust may not be necessary.

In contrast, are you passionate about building wealth that can be handed down for many generations to come? Would you like to avoid estate tax and protect your legacy from probate fees, creditors, and bankruptcies? Are you worried about how distributions might be handled by future generations who might deal with behavioral issues or substance abuse? These are all practical reasons a perpetual trust could be a great tool. It can help protect your assets so they can be managed and distributed by a trustee in a way that contributes to your family's wealth and well-being, rather than being whittled away by chance and bad judgment.

That's one of the best things about a perpetual trust; it gives you the greatest level of control over how your legacy lasts and benefits loved ones.

Plan Your Legacy With Trust & Will

Trust & Will does not offer perpetual or dynasty trusts, as they're designed for a narrow set of high-net-worth families with very specific multi-generational goals. However, we offer a range of other estate planning tools that work well for most people and families.

Perpetual trusts, or dynasty trusts, are a powerful estate planning tool for those who want to make their legacy last for many generations, and not just the generation that directly follows them. A perpetual trust can shelter your hard-earned assets from estate taxes, probate fees, and the other strain many beneficiaries encounter when trying to claim their rightful inheritances. The majority of states have either abolished or significantly modified the Rule Against Perpetuities, so just be sure that perpetual trusts are allowed in the state you live in.

Finally, be extra sure that a perpetual trust is the right option for you. Although powerful, they're irrevocable, meaning you can't make changes once you set up and fund the trust. Once you do, however, you can have a sense of peace and pride knowing that you've done something amazing for your legacy and your family members for many, many years down your own bloodline.

Frequently Asked Questions About Perpetual Trusts

How long can a perpetual trust actually last?

Duration depends on state law. Some states allow indefinite trusts while others set limits ranging from around 90 years to 1,000 years. The trust continues as long as it has assets and serves a valid purpose.

What's the difference between a perpetual trust and a dynasty trust?

The terms are often used interchangeably. Both refer to a long-term trust designed to pass wealth through multiple generations while minimizing taxes. "Perpetual trust" emphasizes the duration, while "dynasty trust" highlights the goal of creating a family legacy.

What are the tax implications of establishing a perpetual trust?

Perpetual trusts minimize estate and generation-skipping transfer taxes across generations. The trust pays income taxes on its earnings, but avoids transfer taxes that would occur with direct inheritance.

Can a perpetual trust be modified after it's created?

Generally, no. Perpetual trusts are irrevocable, meaning the person who creates one cannot easily change the terms or reclaim the assets. However, the trust document can be drafted to give the trustee some flexibility to adapt to future circumstances, a process known as "decanting" in some states.

What's the minimum asset level needed to justify a perpetual trust?

While there's no official minimum, most advisors recommend considering perpetual trusts when assets exceed the federal estate tax exemption. Setup and maintenance costs make them most practical for high-net-worth families.

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