2000 Lane Reports

The Perpetual Trust

Saturday, January 1, 2000
by Marc J. Lane

Our best wishes to you and your family for health, happiness and prosperity in the New Millennium.

What better time to reflect on our hopes and dreams and reassess our priorities? And, as luck would have it, the Illinois legislature has made it easier for Illinois residents to influence the lives of our children and grandchildren - and their children and grandchildren - in ways that simply haven't been available until now.

Since 1620 most countries whose legal systems are based on English common law have adopted a rule against "perpetuities," preventing people from setting up trusts which would control assets for generations to come. The public policy rationale has been to free distant descendants from the ancient preferences and prejudices of their forebears. But now Illinois has joined Alaska, Delaware, Idaho, North Dakota and Wisconsin in permitting trusts to last forever.

The new "qualified perpetual trust" presents tax and nontax opportunities for the rich and not-so-rich alike. For one thing, married couples can now transfer up to $2 million to fund their descendants' support, education or medical needs without incurring any Federal gift or estate tax. Even more tax can be avoided by allocating the so-called Generation Skipping Trust ("GST") exemption to an irrevocable, perpetual trust during the settlors' lives when premiums are paid on a life insurance policy owned by the trust.

But qualified perpetual trusts can do all kinds of things for people of moderate means, too. They can set aside funds to pay college or medical expenses for members of their extended families. They can ensure that a vacation home remains in the family without fragmenting ownership or running the risk that a bad marriage or bad credit might one day cloud title. They can protect family heirlooms for generations to come. They can protect assets from the claims of family creditors. And they can encourage "good behavior" and discourage "bad behavior" by family members yet unborn. (See the May, 1999 Lane Report: "How value-based trusts encourage good behavior.")

A perpetual trust, as attractive as it may be, presents new challenges for the attorney. One issue worth discussing is the prudent investment mix for a trust which may not make distributions for a generation or two. Another is the desirability, or perhaps the necessity, of naming an institutional trustee or co-trustee to collaborate with family member co-trustees or "trust protectors," who will have their own rights, probably including the right to replace an institutional trustee.

These challenges can be daunting but the perpetual trust's enormous possibilities are worth considering.

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The Lane Report is a publication of The Law Offices of Marc J. Lane, a Professional Corporation. We attempt to highlight and discuss areas of general interest that may result in planning opportunities. Nothing contained in The Lane Report should be construed as legal advice or a legal opinion. Consultation with a professional is recommended before implementing any of the ideas discussed herein. Copyright, 2003 by The Law Offices of Marc J. Lane, A Professional Corporation. Reproduction, in whole or in part, is forbidden without prior written permission.

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