A trust is a way of setting aside money to be used for the benefit of a certain entity, person, or group of people known as the beneficiaries. This money is managed by a trustee who may or may not be the beneficiary. A perpetual trust is a type of trust that passes from generation to generation so that the children of the original beneficiaries can also benefit from the trust. Trusts are often used as a legal way to avoid taxes and keep money and property from being taken by creditors in the event of legal trouble.
A trust is created when one person, sometimes called the originator, names one or several beneficiaries. These are often children of the originator, but they can also be other family members or even charity organizations. A manager is chosen for the trust, called a trustee. This person can be a friend or family member, but can also be a lawyer, attorney, or accountant. The income and principal created by the trust are used for the benefit of each named beneficiary.
In a perpetual trust, the named beneficiaries receive income and principal payments for as long as they live, and the benefit continues to their children after the death of the named beneficiaries. The same rules and conditions apply to second-generation beneficiaries of a perpetual trust as applied to the first generation. This process continues until the perpetual trust runs out of assets or until the long-term legal limit has run out.
In the United States, not all states allow the creation of a true perpetual trust. Some require a expiration date of 150 to 1000 years, but that is long enough to be considered practically perpetual, as it will be passed down through several generations. Most states that allow perpetual trusts do not require the creator of the trust to be a resident of the state in order to create the trust.
A trust is similar to a will in that it allows the owner of the property to name who will have use of her property after she dies. The benefit of choosing a trust over a will is that less of the money will be tied up in legal fees and taxes and so more will be left to the person who inherits the property. The other benefit is that the money cannot be taken by creditors. If the beneficiary of the trust goes into bankruptcy or defaults on loans, the trust assets cannot be taken to pay off debts.