Maximum Duration of Trusts

By Jeff Franco J.D./M.A./M.B.A.

Setting up a trust can be as simple as drafting a document that outlines how the trust is to operate, naming beneficiaries and funding it with property. Since trust laws may vary from state to state, determining what the maximum duration of a trust can be is a little more complicated. However, there are other factors to consider when assessing a trust’s maximum duration that aren’t specific to any state.

Setting up a trust can be as simple as drafting a document that outlines how the trust is to operate, naming beneficiaries and funding it with property. Since trust laws may vary from state to state, determining what the maximum duration of a trust can be is a little more complicated. However, there are other factors to consider when assessing a trust’s maximum duration that aren’t specific to any state.

Rule Against Perpetuities

A large number of states use the rule against perpetuities to establish the maximum duration of trusts, though 21 states have abolished it. The rule applies to trusts that designate beneficiaries who may not exist in the future. Specifically, the rule terminates the trust 21 years after the death of the last beneficiary who was alive and known to the person creating the trust at the time it was created. For example, suppose you create a trust, fund it with $100,000 and require the interest income to be paid to your only child for his life with the remaining trust principal payable at his death to his first child who marries -- none of whom are alive at the time of your death. Since there’s always the possibility that your son won’t have any children or that none of them will ever marry within 21 years of their father's death, the trust is subject to the rule against perpetuities. However, if your first granddaughter marries in the 20th year, the trust is enforceable and she will receive the trust principal. But if 21 years pass and none of your grandchildren get married, the trust will terminate immediately after the passage of 21 years.

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Indefinite Duration States

There are a number of states that don’t impose any limitations on how long a trust can exist. Delaware is one such state that allows you to create a trust that can exist for an unlimited duration; thereby, allowing trust creators more opportunities to pass their wealth on to successive generations indefinitely. Florida is another example of a state that no longer imposes the rule against perpetuities, but unlike Delaware, it still places limitations on a trust’s duration. However, Florida’s trust law isn’t nearly as restrictive as the rule against perpetuities and allows trusts to exist for up to 360 years.

Trust Document Terms

When you create a trust and draft terms that the trustee must adhere to, it’s also possible to impose your own limitations on the length of time the trust can exist – provided it doesn’t create a longer life than state law allows for. There are a number of ways to accomplish this, but the simplest method is to include a specific date that the trust will terminate in the trust document. It is also important to realize that all trusts terminate at the time a beneficiary receives the last of the remaining property within the trust.

Other Duration Limitations

A trust can also terminate, despite the creator’s intention for it to exist longer, if the passage of a subsequent law makes carrying out the terms of the trust unlawful, contrary to public policy or impossible. Moreover, if the trust is irrevocable – meaning the person creating it retains no authority over the trust – and it isn’t set up for charitable purposes, the beneficiaries can unanimously agree to terminate the trust at any time.

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What Is a Non Testamentary Trust?

References

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