How Long is Too Long?

In 2004, Tennessee adopted the Uniform Trust Code. At the same time, Tennessee amended its rule against perpetuities (RAP) to 360 years. This change to the RAP means that a trust can last for up to 360 years before being required to terminate.

Tax attorneys (like myself) love these so-called "dynasty trusts" because they allow taxpayers to avoid estate taxes. As long as the funds stay in the trust, they will not be subject to estate taxes. Accordingly, a trust lasting for 360 years could avoid estate taxes for more than 10 generations, which provides an unbelievable tax benefit.

But, do our clients really want trusts that last for 360 years?

I have found in my practice that clients really want to benefit the people they know - their children, grandchildren and sometimes great-grandchildren. Clients (and people in general) often have a hard time thinking about their heirs 360 years from now. A good way to think about this is to consider what was going on 360 years ago - or in the year 1650. This would have been more than 100 years before the Declaration of Independence. Consequently, it is impossible to know what will be going on 360 years from now.

I think the moral of the story is that sometimes as practitioners we can get caught up in the tax planning and forget the real goal - carrying out our clients' goals. I think most clients, if they answered honestly, would prefer their assets pass the to their children, grandchildren and great-grandchildren, even if it costs their heirs in the year 2400 a little extra in estate tax.