The Debt Crisis Lesson

As the United States Government’s spending continues to reach stratospheric levels and outpace tax revenues by over $1 trillion per year, and push against the statutory debt ceiling (the amount the U.S. Treasury is legally allowed to borrow to pay the Government’s bills), there is an important lesson for estate planners and families setting up trusts to provide for future generations.

The debt crisis lesson is be sure you have enough money in your trust to provide for the unexpected. Uniform Trust Code sec. 414(a) provides that a trust may be terminated by the court after the trustee provides notice to the beneficiaries if the amount held in trust is less than $50,000 (the UTC’s suggested amount, which adopting states are free to change), because maintaining a trust with a smaller amount would be uneconomical. My home state of Kansas, which was the first state to adopt the Uniform Trust Code in 2003, allows a court to terminate a trust containing less than $100,000. K.S.A. 58a-414(a).

Is your trust properly funded? Does it contain enough money to provide for you and your family if the unexpected occurs, or a rainy day arrives? Do yourself and your family a favor – be sure your trust is properly funded.

(c) 2011, Stephen M. Johnson, Esq. All rights reserved.


Dynasty Trusts: Multiplying Wealth Across Generations

Bloomberg provides an excellent and accessible intro to dynasty trusts and the great features families can use to multiply wealth across generations. The article highlights some legal differences between various dynasty trust jurisdictions – such as New Jersey, Pennsylvania, and Delaware – and some unique provisions of Delaware trust law that may be especially attractive to estate planning clients and families contemplating business succession issues, including expanded protections against creditors and civil law suits (including lurking divorces).

The growth of dynasty trusts as a tool in the estate planner’s portfolio, especially for clients with significant wealth or business interests to be transferred to future generations, has been made possible by a phenomenon of states repealing their Rule Against Perpetuities statutes. A growing number of states have repealed the Rule Against Perpetuities, a relic of the old common law of property, and thus allowing perpetual or dynasty trusts. In the Kansas City area, Missouri allows dynasty trusts, but Kansas does not (having refused to repudiate the Rule Against Perpetuities). Currently, 28 states (and the District of Columbia) (56% of American states) allow dynasty trusts: Alaska, Arizona, Colorado, Delaware, Florida, Hawaii, Idaho, Illinois, Kentucky, Maine, Maryland, Michigan, Missouri, Nebraska, Nevada, New Hampshire, New Jersey, North Carolina, Ohio, Pennsylvania, Rhode Island, South Dakota, Tennessee, Utah, Virginia, Washington, Washington, D.C., Wisconsin, and Wyoming. Expect that number to continue to grow steadily in the future, as more states vie for trust business.

Delaware may well become the bastion of trust law, just as it’s already the bastion of corporate law, thanks to its favorable corporate law statutes and the Chancery Court’s business-friendly jurisprudence.

(c) 2011, Stephen M. Johnson, Esq. All rights reserved.