As more states ease or discard the rule against perpetuities, family trusts are being set up to last for a thousand years or even "forever." Doesn't that stretch the definition of family to the breaking point?
Yes, according to Lawrence W. Waggoner of the University of Michigan Law School."Trusts intended to operate for as many as a thousand years or even in perpetuity, typically for the benefit of the settlor’s descendants living from time to time, now and in the future, are all the rage in banking and some estate planning circles," Waggoner writes. In From Here to Eternity, the Folly of Perpetual Trusts, he does the math showing the absurd consequences.
He shouldn't worry. As life beneficiaries of a "perpetual" trust proliferate from generation to generation, the value of what each beneficiary receives will dwindle, eventually prompting the trust to distribute the few crumbs remaining and terminate. Centuries ago this inevitability was explained by Oliver Wendell Holmes: A great fortune will split "into four handsome properties; each of these into four good inheritances; these, again, into scanty competences…."
Perpetual trusts cannot generate perpetual wealth for heirs whose number multiplies with each generation. In Holmes' day New Englanders knew as much. The secret of perpetual wealth is that each generation must rebuild that wealth.
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