The Rule Against Perpetuities Fades Away - Dynasty Trusts in Texas by Hammerle Finley Law Firm

If you are the grantor, beneficiary, creditor, trust protector, CPA, financial advisor, attorney or trustee of a trust, or if you just generally think trusts are a nifty idea and want to learn more, then you will find this of interest.

The Rule Against Perpetuities for trusts in Texas is going on life support as of September 1, 2021 and Texas dynasty trusts are now a real thing. No fooling; the Governor signed the bill on June 16, 2021.

Here is how it shakes out. The Rule Against Perpetuities is a legal principle, based on English feudal law, that defines the permissible duration for most trusts. Texas was one of the last holdouts to require a relatively short period – a trust could only last 21 years after the last “life in being” at the time the trust was created died.

The effect was to prohibit a dynasty trust – one that lasts for multiple generations – from being set up under Texas law. That meant a lot of wealthy people took their trusts, and their money, to other states with less onerous restrictions.

How Long Can A Trust Last In Texas?

Thankfully, that is all behind us. The new law sets the maximum trust period for 300 years.
The 300- year period starts running on the effective date of the trust. The effective date is the date the trust becomes irrevocable. For some trusts, that will be the date the trust is signed. For other trusts, that will be the date a grantor dies or becomes incapacitated. It all depends on the trust terms.

Do All Trusts Get The 300-Year Period?

The new 300- year period only applies to trusts with effective dates on or after September 1, 2021. Obviously, that leaves a lot of existing trusts stuck with the old 21-year rule. Those existing trusts should be reviewed to see if they come under the one savings clause – if the trust language provides that an interest in the trust vests under the provisions of Section 112.036 of the Texas Property Code applicable to trusts on the date that the interest vests, then the 300-year period applies.

To put that in plain language, if the trust language references the statute and does not spell out the 21-year rule, then that is enough to bring the trust under the 300-year rule.
For those trusts drafted without the magic language, a court may be able to reform the trust. True, a lot of trusts were created for the express purpose of keeping an estate and the beneficiaries out of court, but circumstances can change the perspective a bit.

Can A Trustee Modify A Trust?

Some of the newer trusts may have incorporated a “trust protector” provision that gives a designated person the power to modify the trust in the event of a change in law. Now would be a great time for the trust protectors to swing into action.

For grantors of revocable trusts, it is also a good time to review your trust language.
One of the reasons this change took so long was the concern about real property – land, mineral interests and the like. A lot of people did not want to have real property tied up in a trust for 300 years or so. The new law addresses that by limiting a grantor’s ability to require the land be held for more than 100 years.

You can now set up a trust and have your name blessed by your children, your children’s children, your children’s children’s children and so on for 300 years. A true Texas dynasty trust. It is about time.