Texas Now Allows 300 Year Trusts

In last week’s Family Legacy Planning email, we shined a spotlight on the concept of stewardship and Hobby Lobby founder’s legacy plan: “No one owns the tree.” Each generation is responsible for nourishing the family enterprise so it will continue to bear fruit for generations to come. The optimum estate plan is to transfer the family assets into a trust that benefits heirs yet preserves the “tree” to pass down from generation to generation. The ideal trust also provides for mentoring heirs, so they grow into responsible, educated, empowered beneficiaries who understand and embrace the family culture.

With family legacy planning now a growing trend, there is an increased appetite for trusts of longer duration. Such trusts not only protect the family “tree,” but they also provide the beneficiaries with important protections against creditors and divorce, as well as tax savings. Recognizing this trend, the Texas legislature just enacted a new law to allow trusts to last for 300 years. The new law applies to trusts with an effective date on or after September 1, 2021. If you create an irrevocable trust during your life, the effective date is the date the trust is created. If your Will or Living Trust provides for trusts that will be activated upon your death, the effective date will be your date of death.

Before this new law, the Texas “Rule Against Perpetuities” permitted trusts to last no longer than the lifetime of anyone alive at time of trust creation (known as a “measuring life” who was identified in the trust), plus 21 years. If such a measuring life was a baby who lived to 80, the maximum length of a Texas trust was about 100 years.

In the past, Texans wishing to create a longer-term trust created the trust under the law of another state (such as a perpetual trust in Delaware, South Dakota, or Alaska, or a 365-year trust in Nevada). To do so required naming a trustee in that chosen state. Texans desiring longer-term trusts now have the choice of keeping their trusts at home. There are still other protections that may favor creating an out-of-state trust, but if the only concern is duration, a Texas trust is now an option.

Estate planners are now exploring whether irrevocable trusts created before September 1, 2021 can be modified to last longer. That analysis needs to happen on a trust-by-trust basis, depending on the facts of each case. However, what is clear is that if your Will or Living Trust creates a Texas trust that activates upon your death, you should consider amending your plan to take advantage of the new 300 year term.

Marvin E. Blum