Forever is a long time. But as of June 3, 2008, that's how long trusts will be permitted to last in Michigan.
The legislative change was spearheaded by Greenleaf Trust, which hired attorney James Spica of Warner Norcross & Judd LLP to draft the legislation.
This change in law has significant ramifications.
Previously, a statute called "the rule against perpetuities" limited the period of time a trust could last. Each state has its own version of the rule. In Michigan, prior to this law change, the maximum duration of a private trust was approximately 90 years. The recent change puts Michigan in the company of only a handful of other states allowing for perpetual Dynasty Trusts that can effectively go on forever, benefiting the descendants of the trust's creator for generations.
Why a Dynasty Trust?
A Dynasty Trust is an irrevocable trust, funded either during life or at death, designed to hold assets in trust subject to the creator's direction. The trust assets are never directly distributed to the beneficiary except for the purposes specified in the trust.
Some of these specific purposes may include:
Provide Security for Your Descendants. Because the trust assets are never directly in the control of the beneficiary, they are usually not subject to the claims of the beneficiary's creditors or ex-spouses. The Dynasty Trust is also a means of ensuring family wealth continues to pass to direct family members.
Encourage Specific Goals. Control of the trust assets by someone other than the beneficiary (the Trustee) can ensure the funds are used for specific purposes. For example, distributions may be permitted to provide an education, supplement a beneficiary's retirement income and provide for the continuity of control and operation of a closely held family business.
Reduce depletion of wealth from multi-generation estate taxation. The assets transferred into the trust are subject to either gift tax (if transferred during life) or estate tax (if transferred at death). If properly drafted and administered, the assets should not again be subject to transfer tax as long as they stay in the trust. Most significantly, any appreciation in the value of the trust assets should be exempt from estate tax upon the death of each beneficiary.
With proper tax planning, a Dynasty Trust can greatly reduce or eliminate the estate taxation of assets as they pass from generation to generation. More importantly, a Dynasty Trust can ensure that family wealth is passed on to successive generations while preserving family values and achieving specific goals as to its use.
If you desire to consider this new opportunity as part of your estate plan, please contact your estate planning attorney.