The Dynasty Trust in Ohio: A Short, Rigid, or Uncertain Reign

Abstract

Ohio joined the ranks of states that permit dynasty trusts in 1999. A settlor may opt-out of the Ohio common law Rule against Perpetuities and stipulate that her irrevocable trust last for hundreds of years or even continue forever. The common law Rule continues to apply, however, to the exercise of non-general powers of appointment within a trust that has opted-out of the common law Rule. This restriction severely limits the ability of an opt-out trust to adjust to future circumstances. The limitation is so severe that a settlor must choose between a trust that remains subject to the short, common law Rule or a trust that opts-out and then either lives a perpetual but rigid existence or faces an uncertain future because beneficiaries will seek its modification or termination.

The statutory defects are curable. Trusts of unlimited duration can permit valid exercise of non-general powers when the statute clearly measures validity of an exercise from creation of the irrevocable trust. If the applicable law also provides that exercise of an inter-vivos general power starts a new perpetuities period, the holder of a power within a dynasty trust also may allow a beneficiary to escape the dynasty trust when that produces a favorable result.