The Demise of Dynasty Trusts: Returning the Wealth to the Family

Estate Planning and Community Property Law Journal, Vol. 5, p. 23, 2012

U Denver Legal Studies Research Paper No. 13-18

33 Pages Posted: 5 Apr 2013

See all articles by Lucy Marsh

Lucy Marsh

University of Denver Sturm College of Law

Date Written: 2012

Abstract

Recently, a flurry of state legislation has made it possible for an individual to create a long-term private trust, called a Dynasty Trust, in close to one-half of the states of the United States. What is unusual about Dynasty Trusts is that they may be established to last for 150 years, 1,000 years, or some other extremely long period of time, depending on the jurisdiction.

Many lawyers, banks, and tax advisors are rushing to try to persuade their clients to set up such Dynasty Trusts, claiming that such trusts will provide a way of protecting the clients' descendants for the next 1,000 years or so.

But who is likely to derive the most benefit from the existence of Dynasty Trusts? Upon close inspection, it seems clear that in reality, corporate fiduciaries-hereafter simply referred to as banks-are likely to reap the major benefits from a Dynasty Trust, rather than the descendants of the settlor. That may explain why the banks lobbied so hard to try to get states to adopt the legislation that made Dynasty Trusts possible.

This article is designed to try to speed the demise of Dynasty Trusts by bringing some common sense to the discussion of Dynasty Trusts. It is time for people to feel confident in leaving assets to their children and grandchildren, rather than to the banks.

After an introductory review of some of the fundamentals of a trust, Part II of this article will attempt to illustrate why banks have lobbied so strongly for Dynasty Trusts and why the existence of such trusts may cause serious problems. Part III will discuss the attractions of Dynasty Trusts. Part IV will point out how little money would actually be available for remote descendants of the settlor of a Dynasty Trust after 1,000 years. Part V will discuss historical experience with fractionalization of beneficial ownership. Part VI will suggest several clear, relatively simple solutions.

Suggested Citation

Marsh, Lucy, The Demise of Dynasty Trusts: Returning the Wealth to the Family (2012). Estate Planning and Community Property Law Journal, Vol. 5, p. 23, 2012, U Denver Legal Studies Research Paper No. 13-18, Available at SSRN: https://ssrn.com/abstract=2244478

Lucy Marsh (Contact Author)

University of Denver Sturm College of Law ( email )

2255 E. Evans Avenue
Denver, CO 80208
United States

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