(Al W. King III, Co-Founder, South Dakota Trust Company)
The purpose trust has evolved into a powerful estate-planning trust in the United States. It’s a non-charitable trust without beneficiaries that generally perpetuates a purpose: to care for property. It began mainly as a pet trust because pets are considered property. The purpose trust has since evolved to include many expanded purposes.1 Additionally, the purpose trust durations have extended beyond the typical 21 to 25 years of the initial pet trust statutes. The modern purpose trust is dynastic or long term in many states and can be established for almost any legal purpose.2 Purpose trusts can provide a great vehicle to protect assets near and dear to the family in perpetuity.
Before gaining popularity in the United States, the purpose trust was used offshore.3 Many domestic purpose trust statutes have developed extensively over the last few years to provide a great onshore option for settlors desiring to avoid all the negatives4 associated with a U.S. citizen establishing an offshore trust. Many domestic purpose trusts are completed gift dynasty trusts excluded from the estate and drafted either as grantor or non-grantor trusts. They can also be revocable during the grantor’s lifetime. A revocable purpose trust could have dynasty provisions awaiting a pour-over from the grantor’s will or another trust.
Generally, trusts are required to have human beneficiaries. Purpose trusts are the exception. Without any beneficiaries, there’s no one to enforce the trust. Many domestic trust jurisdictions have enacted legislation providing for enforcement and other key provisions, thus validating purpose trusts. If a purpose trust is established to maintain a family asset and the family uses that asset and indirectly benefits from the trust, the family members aren’t beneficiaries and, consequently, wouldn’t have any enforcement rights. This would be the enforcer’s role. It’s the responsibility of the enforcer of a purpose trust to ensure that the trust’s purpose is carried out and that the trustee performs its duties.5 The enforcer generally has the authority to seek court action, if necessary.6 Purpose trusts may have more than one enforcer. The enforcer doesn’t usually have the power to change trust situs, add or delete beneficiaries or reform or modify the trust. Those powers are often reserved for the trust protector.
A trust protector’s role in a purpose trust is also extremely important due to the possible future need to modify the trust over the term of the purpose. Most boutique trust states also have trust protector statutes with many additional powers, such as changing situs or adding beneficiaries so distributions can be made once the trust purpose has ended.7 Some modern trust states also allow for hybrid purpose trusts combining both a non-beneficiary trust with a beneficiary trust.8 Additionally, the trust protector and enforcer positions within the trust can either be separated or combined into one position.9
Key Features
Some of the key features of a purpose trust include:10
1. Statement of a valid purpose (the purpose can’t be against public policy and must be legal, reasonable and attainable);
2. No requirement to appoint any beneficiaries;
3. Appointment of a trust enforcer to enforce the purpose with authority to seek court action;
4. Appointment of a trust protector who can reform or modify the trust;
5. Appointment of a trustee in a trust situs with an appropriate purpose trust statute properly administering the trust for the desired purpose; and
6. A duration or term (generally, the range is a 21-years to unlimited/perpetual duration) that varies, based on state statute and trust situs.
Almost all states allow for pet and cemetery trusts, but only some states allow the establishment of purpose trusts with expanded purposes and durations. States such as Delaware, New Hampshire, South Dakota, Tennessee and Wyoming all allow purpose trusts for most broad lawful purposes, in addition to providing for pets and honorary purposes.11
Traditional Purposes
Some of the more traditional purposes of purpose trusts are:12
• Pet care (including offspring);
• Maintenance of grave sites (honorary trusts);
• Maintenance of family property (for example, antiques, cars, jewelry and memorabilia);
• Maintenance of an art collection;
• Maintenance of family homes (residence and vacation);
• Long-term maintenance of building, property or land;
• Royalties; and
• Digital asset protection.
Expanded Purposes
One of the newer and more expanded uses of purpose trusts is the maintenance of business interests. This is exemplified by Patagonia13 and Facebook:14
Patagonia. The Patagonia founder, Yvon Chouinard, used the purpose trust as his family’s main tool for succession to ensure that the family’s values continue in the company. Yvon has famously written, “Instead of ‘going public’ you could say we’re ‘going purpose.’”15 In 2022, the family transferred all its company’s voting stock, equivalent to 2% of the overall shares, into a newly formed purpose trust named the Patagonia Purpose Trust. That trust gave 100% of the nonvoting stock to the Holdfast Collective, a nonprofit dedicated to environmental causes. The Patagonia Purpose Trust’s purpose is to protect the company’s values and mission. It has the right to approve key company decisions, such as who sits on the board of directors and what changes can be made to the company’s legal charter, including its reason for being and B Corp commitments. The family and their closest advisors guide the purpose trust.16
Facebook. In addition to business succession, there have been other creative uses of a purpose trust in businesses. For example, in 2019, Facebook, Inc. (now Meta) used the purpose trust to form the Oversight Board Trust. The purpose of the trust is to:
... facilitate the creation, funding, management, and oversight of a structure that will permit and protect the operation of an Oversight Board (the Board), the purpose of which is to protect free expression by making principled, independent decisions about important pieces of content and by issuing policy advisory opinions on Facebook’s content policies.17
The purpose trust was formed and funded by Facebook and served as the main source of funds needed to facilitate the operations of the Oversight Board Trust. Specifically, the purpose trust formed and maintains a single member limited liability company, which entered into a service agreement to provide such review services to Facebook.18
PFTCs and Related Entities
Another relatively new use of purpose trusts is as the owner of private family trust companies (PFTCs), special purpose entities (SPEs) and trust protector companies (TPCs). These are popular vehicles to serve as trustees and fiduciaries of a family’s wealth.19 Often, families and advisors have difficulty determining who can or should be the owner of such entities given their potential for a long-term or perpetual existence. Rather than having these vehicles owned individually by a family, a purpose trust is frequently chosen for ownership. Thereby, the sole purpose of the trust is to perpetuate the ownership interest in the PFTC, SPE or TPC in perpetuity (if a perpetual purpose trust state is used). If the entity is no longer needed and the PFTC, SPE or TPC ceases to exist, then the trust protector typically has the power to terminate the purpose trust. Consequently, purpose trusts provide a powerful solution for the ownership of a PFTC, SPE or TPC.
Charitable Grant Advisor
Purpose trusts are also gaining momentum as donor-advised funds’ (DAFs) and other charitable vehicles’ grant advisors. Many families choose DAFs as part of their estate plans, alone or in conjunction with a private foundation (PF).20 The PF and DAF combination allows for a larger charitable income tax deduction. Additionally, if a family desires to terminate the PF, they can contribute its assets to a DAF. PFs are also a popular combination with DAFs because DAFs don’t generally provide as much flexibility regarding charitable donations and purposes as PFs. Additionally, once the primary and successor DAF grant advisors are no longer around, the family’s charitable purpose may not be as well understood by the DAF. This could result in a shift in the charitable purpose. Some families look to make a purpose trust as a successor grant advisor to ensure that this doesn’t happen and that the family’s charitable desires are perpetual. The ability to do this depends on the DAF.
Cryonic Suspension
Purpose trusts are also used for families interested in cryonic suspension for pets and family members. The trust’s purpose would be to enforce and perpetuate the cryonic suspension. In these cases, states with expanded purposes, as well as perpetual or long-term durations, would generally be selected. The trust must be available when and if the pet and family member thaw out. Those in cryonic suspension are generally considered legally dead but not medically dead.
Endnotes
1. Al W. King III, “Trusts Without Beneficiaries—What’s the Purpose?”
Trusts & Estates (February 2015); Charles E. Rounds, Jr. and Charles
E. Rounds, III, Loring and Rounds: A Trustee’s Handbook, Section 9.27
(2015); Alexander A. Bove, Jr., “Rise of the Purpose Trust,” Trusts &
Estates (August 2005); Alexander A. Bove, Jr., “The Purpose of Purpose
Trusts,” Probate & Property (May/June 2004); Alexander A. Bove, Jr.,
“Trusts Without Beneficiaries: Planning With Purpose Trusts,” Boston
Bar Association (Oct. 21, 2014); Alexander A. Bove, Jr., Trust Protectors:
A Practice Manual With Forms, Section 10.5, at pp. 136-137 (2014).
2. Ibid; Both the Uniform Trust Code and the Uniform Probate Code
allow for a 21-year purpose trust, which may not be long enough to
serve the settlor’s desired purpose. A few jurisdictions allow purpose
trusts for terms longer than 21 years, and at least 10 states allow for
dynasty purpose trusts. See, for example, S.D.C.L. Section 55-1-20.
Additionally, the statutes differ in dynasty purpose trust jurisdictions.
Delaware, New Hampshire, South Dakota and Wyoming have more
expansive purpose trust statutes. Additionally, these jurisdictions have
many other powerful trust, asset protection and income tax statutes
to support their top-rated purpose trust statutes.
3. Some of the more popular offshore non-charitable purpose trust
jurisdictions are: Bahamas, Bermuda, British Virgin Islands, Cayman
Islands, Isle of Man, Jersey, Liechtenstein and Nevis. See Alexander A.
Bove, Jr., Asset Protection Strategies: Wealth Preservation Planning
With Domestic and Offshore Entities, Volume II (ABA 2004).
4. For example, the potential for increased reporting requirements that
may be required as a result of having trusts offshore. Al W. King III,
“Trends and Opportunities for NRAs With U.S. Beneficiaries” Trusts &
Estates ( June 2018).
5. See supra note 1.
6. For example, SDCL 55-1-21.4.
7. Trust protectors are recognized by statute in many of the modern
trust jurisdictions (that is, Alaska, Delaware, New Hampshire, Nevada,
South Dakota and Wyoming) and generally have many important
personal or fiduciary powers that increase trust administration
efficiency. Typically, those powers include the ability to remove or
replace trustees/fiduciaries, veto or direct trust distributions, add/or
remove beneficiaries (or appoint someone to do this), change situs
and the governing law of the trust, veto or direct investment decisions,
consent to exercise power of appointment, amend the trust as to the
administrative and dispositive provisions, approve trustee accounts
and terminate the trust.
8. A hybrid purpose trust statute allows for a share of the trust to operate
as a typical third-party beneficiary trust and another share to operate
as a typical non-charitable purpose trust with no beneficiaries. See, for
example, SDCL 55-1-22.
9. See supra note 1.
10. Ibid.
11. States with broad purpose trust statutes with long durations include
Delaware, Nevada, New Hampshire, South Dakota and Wyoming.
12. See supra note 1.
13. Yvon Chouinard, “Earth is Now our Only Shareholder,” Patagonia;
David Gelles, “Billionaire No More: Patagonia Founder Gives Away
