Trusts usually don’t last forever. They’re not like reruns of NBC’s “Friends,” which our children’s children’s grandchildren will be watching when they’re living in space stations orbiting the moon.
There’s a simple reason why they don’t last: Trusts usually end when the creator of the trust dies and the trustee distributes the trust’s assets. With the trust emptied of its assets, it doesn’t have a useful purpose anymore.
Death, however, isn’t the only way that a trust ends.
It also happens when trusts are designed with a specified end date or require that certain conditions be met before the assets can be distributed. A grandparent, for instance, may leave money to a grandchild but specify in the trust that the assets won’t be available until the child turns 18 or graduates college or marries or …. you get the idea.
Even though trusts are pretty straightforward, there are still some people who think they can keep using the trust long after its original purpose ends.
Take the following example.
Can I use a trust for inherited property?
In the world of probate there are stories like the one about several siblings who shared a stake in their parents’ beautiful beachfront house and wanted to keep it as a rental property after their parents died.
Everything else in their parents’ trust had been disbursed, but the siblings thought it would be a great idea to turn the house into a vacation rental with the rent shared evenly among the siblings. Each sibling would claim a share of the income and expenses for the rental on their individual taxes.
If that’s the case, and the siblings were all in agreement about keeping the house in the trust, they could do that, right?
Thinking outside of the box might be encouraged in most occupations, but you can’t do that with a trust. The beneficiaries are limited by the conditions and restrictions that the trustor—that’s the person who created the trust—specified when he or she first established it.
The better option instead for these Airbnb-minded siblings is to simply distribute the house according to the trust’s requirements, and then talk to a financial advisor about setting up shared ownership of the property. The trust can’t be used for that.
Most trusts are like a gallon of milk or a Domino’s pizza coupon: They have an expiration date. The longest a trust usually can last is for 21 years after the death of the last beneficiary who was alive when the trust was first established.
But—contrary to the example of the siblings above—there are actually some trusts that can last even longer, and these are called “dynasty trusts.”
Just in case you’re an aficionado of 1980s television, these trusts aren’t named after the hit 1981 soap opera about the wealthy Carrington family (or the 2017 reboot)—dynasty trusts are called that because they enable people at high levels of wealth to pass on their assets to future generations without getting hit with estate taxes.
A dynasty trust can last for 100 years (or even longer), and it’s a good way for someone who has built an empire from nothing to feel some comfort in knowing that his or her legacy will keep on going.
A dynasty trust is set up as an irrevocable trust, which is very different from the kind of trust that most people typically have (a revocable one) to pass on assets to loved ones when they die. (More specifics about irrevocable trusts are covered in a separate post on this blog.)
As the name might suggest, irrevocable trusts are pretty serious. They can’t be amended or changed (well, they can, but it is incredibly difficult to do), and the operation of these trusts—since they’re intended to extend well beyond the current generation—are usually controlled by a trustee who is a bank or another financial institution, not an actual person.
Is a Dynasty Trust in your Future?
If you happen to be in a position that may require a dynasty trust—and it’s not just for the Carrington clan on “Dynasty”—it’s a good idea to find out more about what’s involved in setting up this trust and its benefits and disadvantages by consulting the Law Offices of Christopher B. Johnson.
Johnson and his team will get you the answers you need faster than that time Krystle Carrington pushed Alexis Colby into the pool (remember?).