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Thursday, May 9, 2024

A Perpetual Purpose Trust Without Beneficiaries - What's the Purpose

Three common goals of legacy planning are: (1) perpetual existence, (2) separating the principal of your legacy assets from the revenue those assets generate, and (2) separating the management and control of your legacy assets from who benefits economically. A purpose trust can swiftly accomplish all three.

First, many states – including Delaware, South Dakota, Nevada, and Wyoming – now permit “perpetual” trusts (i.e., trusts that can last forever) or trusts that can exist for an extraordinarily long period of time, such as 1,000 years.  Separating the principal of your legacy assets from the revenue those assets generate and separating the management and control of your legacy assets from those who benefit economically can be achieved in one fell swoop by setting up a multi-tiered trust structure. While your purpose trust can own your legacy assets through a corporate entity (let’s call it “Legacy Co.”), your legacy trust can provide that all of the income received from Legacy Co. be paid to one ore more traditional family dynasty trusts, of which your family can be beneficiaries. This will allow your family or other beneficiaries to benefit economically from your legacy assets without necessarily involving them in the management and control of those assets. Furthermore, by creating a separate vertical for the management and control of your legacy assets, you enable 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, there is the problem of an ever-increasing pool of potential beneficiaries. Even if you build in the maximum protections for the Trustees and give the Trustees complete discretion with regard to how and when (if at all) to make distributions to beneficiaries, the Trustees of the traditional dynasty trust still have fiduciaries duties to those beneficiaries. As a result, the beneficiaries have legal standing to bring a lawsuit against the Trustees, which can put pressure on the Trustees or frustrate the system, potentially thwarting your legacy plan. With a “purpose” trust, there are no beneficiaries to whom the Trustees owe a fiduciary duty or who have legal standing to bring a claim against the Trustees for any reason. 

Instead, when you create a purpose trust you appoint someone (often called a “enforcer”) with the responsibility of ensuring the purpose(s) of the trust are being fulfilled. The result is that your Trustees are free to focus on carrying out your legacy plan as you intended.

Some of the common reasons for establishing a Perpetual Purpose Trust in Wyoming are:

Pet care (including offspring)
Maintenance of grave sites (honorary trusts); also, support of religious gravesite ceremonies
Maintenance of family property (for example, antiques, cars, jewelry and memorabilia)
Maintenance of an art collection
Maintenance of family homes (residence and vacation)
Long-term maintenance of building, property or land
Maintenance of business interests
Digital asset protection
To provide for a philanthropic purpose not qualifying for a charitable deduction
Maintenance of private family trust companies
Maintenance of Special Purpose Entities/ Trust Protector Companies

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