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161 Tr. & Est. 22 (2022)
The Divisible Pot Trust: A Reimagining of the Traditional Dynasty Structure

handle is hein.journals/tande161 and id is 298 raw text is: By Mark Powell, Dana M. Foley & Heather D. Casteel
The Divisible Pot Trust
A reimagining of the traditional dynasty structure

Dynasty trusts are now more en vogue than
ever due to the highest federal gift, estate
and generation-skipping transfer (GST) tax
exemption amounts in history. In addition, more
states have modified or abolished the common law
rule against perpetuities, and the modernization of
trust law under the Uniform Trust Code (UTC) now
allows for a variety of ways to modify irrevocable
trusts. Consider that trusts funded in 2022 with the
$12.06 million of available exemption stand to grow to
over $30 million in just 20 years when compounding
at a modest 5% rate of return. This means that trusts
established and funded with that amount today are
likely to last more than just one generation, warranting
a perpetual trust structure. Many states' laws now allow
for such dynastic trusts, permitting assets to be held in
trust without running afoul of the maximum duration
for trusts under common law. The cherry on top is that
in UTC jurisdictions, clients need not shy away from a
perpetual trust for fear of creating a static vehicle that
can't be modified for unanticipated changes in family
circumstances. Moreover, decanting, modification
agreements and nonjudicial settlement agreements
are now available in many states, adding newfound
flexibility to planning with long-term trusts.
These changing laws present an opportunity for
practitioners to reimagine the recommended structure

in drafting dynasty trusts. While traditionally, the
default method of structuring dynasty trusts is to
divide trust assets into separate share trusts for
children and future generations immediately on the
death of the settlor and/or the settlor's spouse, it's
important for drafting attorneys to consider whether
that approach to trust design should be preferred
given the current planning paradigm. While drafting
consideration must always be given to a client's
individual philosophy in passing wealth on to future
generations, the practitioner should educate and guide
a client on the various ways in which a dynasty trust
may be structured. These options include not only the
traditional splitting into separate share trusts but also
the possibility that assets can remain in a single share
trust or pot trust for longer that can, if necessary, be
divided at a later date.
Separate Share Trusts
For many years, the default trust design was to divide
trust assets immediately into either per stirpital or per
capita shares to be held in separate share trusts for
descendants. This was especially true with lifetime
trusts that give the trustee complete discretion in
making income and principal distributions. This tried-
and-true method of drafting addresses the majority
of clients' goals in: (1) treating children equally in
the initial division of trust assets, and (2) protecting
the beneficiaries' inheritances from the claims of
creditors. And yet, while this common approach to
trust structuring does address most clients' main
objectives in architecting their estate plans, rarely do
clients understand that the immediate splitting of the
trust estate into separate trusts can result in disparate
treatment of beneficiaries just one generation lower.
Take, for example, a situation in which one
child proves to be more of a spendthrift than their

22 / TRUSTS & ESTATES /M

/ MAY 2022

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