The use of a “purpose” trust, as reported in Forbes’ recent article, “Why You Should Consider Using a ‘Purpose’ Trust for Your Legacy Plan,” centers on the idea of protecting and preserving your legacy. It exists not for the benefit of individual heirs, but also to carry out a specific purpose. There are several states whose laws now allow purpose trusts, and you must be certain that the trust exists for a “valid” purpose, according to the law’s definition.
Three common goals of legacy planning are perpetual existence; separating the principal of the legacy assets from the revenue those assets generate; and separating the management and control of the legacy assets from those who benefit economically. A purpose trust can accomplish all of these goals.
Separating the principal of the legacy assets from the revenue those assets produce and separating the management and control of the legacy assets from those who benefit economically, can be achieved by creating up a multi-tiered trust structure.
While your purpose trust can own the legacy assets through a corporate entity, the legacy trust can provide that all of the income received be paid to one or more traditional family dynasty trusts of which your family can be beneficiaries. This lets your family or other beneficiaries benefit economically from your legacy assets without necessarily involving them in the management and control of those assets. By creating a separate vertical for the management and control of your legacy assets, you also allow yourself to be intentional with the succession of that management and control and to integrate family members or outside advisors who are best qualified to oversee your legacy.
In a traditional dynasty trust structure, the ever-increasing pool of potential beneficiaries is a big issue. Even if you create maximum protections for the trustees and give them complete discretion as to how and when (if at all) to make distributions to beneficiaries, the trustees of the traditional dynasty trust still have fiduciary duties to those beneficiaries. As a result, the beneficiaries can file a lawsuit against the trustees, which can pressure trustees or frustrate the system, which may wreak havoc with your legacy plan.
Here’s another benefit: a “purpose” trust does not have any beneficiaries, so the trustees can focus on ensuring that the purpose of the trust is being fulfilled. They don’t have to worry about being sued by beneficiaries, because there are none. A “purpose” trust has a person appointed to make sure that your wishes are carried out the way you wanted.
Speak with an experienced estate planning attorney to learn how your state law treats a purpose trust, and see if it is right for your own situation.
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Reference: Forbes (May 14, 2018) “Why You Should Consider Using A ‘Purpose’ Trust For Your Legacy Plan”