One highly significant change to Minnesota trust laws which went into effect this year was the change in how long a Minnesota trust can last. Often times, an individual or family wish to create a ‘legacy trust’ to preserve farmland, a family business, or other assets for multiple generations. Common situations where legacy trusts are desirable include the preservation of a century farm or avoiding the sale or dissipation of a business someone has spent a lifetime building. Legacy trusts or multi-generational trusts can also be used to benefit favorite charities for generations and other purposes. There was a significant limitation on how long a legacy trust can last in Minnesota prior to August 1st, 2025, due to its complicated history.
History of the Rule Against Perpetuities
Historically, the so-called, Rule Against Perpetuities (RAP), was adopted by many states to limit how long a trust can last and thereby avoid estate or inheritance taxes. Originally, RAP required that an interest in property must vest or fail within 21 years of a ‘life in being’ at the creation of the interest. A ‘life in being’ means a life that was in existence at the creation of the interest. This traditionally included unborn infants; so, in effect the rule required an interest in property to vest or fail within 21 years and nine months of a life in being at the creation of the interest. If the person serving as the ‘measuring life’ was one year old when an interest in property was created and lived until they were 91, the interest in property must become definitively owned by someone or lapse within 21 years (21 years and nine months if there is a pregnancy involved) of the death of this measuring individual. Therefore, the unmodified RAP had the effect of often limiting trust durations to less than 125 years.
There are commonly three policy reasons given to support the old RAP rule: (1)to ensure that land remains alienable, freely sellable, and not locked up in trusts; (2)to keep land productive and not underutilized due to legal constraints; and (3) to limit intergenerational perpetuation of wealth disparities (i.e. Think Rockefellers, Vanderbilts, Carnegies with perpetual trusts).
States Opting Out of RAP
Modern trust law has softened many of these policy arguments supporting the RAP. For example, today’s trust laws often grant trustees sweeping authority to sell, invest, or exchange assets, preventing property from being tied up for the same duration as the owning trust. Greater modern authority for trustees over trust assets also mitigates the concern that a controlling “dead hand” will stifle the potential of property to be optimally productive for society if trusts are allowed to continue long term. So, the strongest argument remaining in favor of RAP is to avoid the concentration of wealth in family lines, but this has not been persuasive enough to avoid the repeal or modification of many RAP statutes as states compete for trust administration business. In other words, states, in competing with other states for trust business, have been willing to overlook the tax revenue loss as a result of doing away with the RAP in exchange for the more immediate revenues generated from trusts being located or moved to their state.
Most states today have modified the traditional RAP because the original formulation was viewed as too rigid. Less than five states currently follow the original RAP currently and at least one of these have pending legislation to modify it. The first wave of changes for RAP statutes in the united states involved many states, including Minnesota, adopting a version of the Uniform Statutory Rule Against Perpetuities (USRAP).
Old RAP Statute in Minnesota
Until recently, Minnesota followed the USRAP’s modified version of RAP as the official law governing the permissible duration of trusts. Initially adopted in 1987, Minn. Stat. § 501A.01 Required any interest in property to vest or fail within 90 years of the creation of the interest. Alternatively, a second more rigid standard in the statute held non- vested property interests were valid if it was certain at the creation of the property interest that the property interest would vest or fail within twenty-one years after the death of someone who was alive at the creation of the property interest. This meant that a trust created to generically benefit “my descendants” could not exist longer than 90 years typically as a family with ever expanding descendants would not be sufficiently ascertained for the property interest to vest in known, final beneficiaries before 90 years had expired. Under the more rigid alternative standard, the likelihood of a trust surviving longer than 90 years was complicated by the “fertile octogenarian” concept. The “fertile octogenarian” refers to the legal theory that even though someone is highly unlikely to have a child in their eighties, it is not legally certain that such an individual is not going to have another descendent (perhaps by adoption) which would then cause the trust to end at 90 years because it would not be certain, at inception of the interest, who the final descendent of the original trust creator would be. Consequently, there was, until recently, virtually a 90-year limitation on how long trusts could exist in Minnesota.
Minnesota’s New 500 Year Trust Statute
This year, Minnesota revised its trust code to allow for trusts that last for 500 years, instead of 90. This became effective August 1st, 2025. The revised statute added section (f) which reads, in its entirety, as follows:
For any trust created on or after August 1, 2025, this section shall apply to a nonvested property interest or power of appointment contained in a trust by substituting the term “500 years” for “90 years” in each place it appears in this section, unless the terms of the trust require that all beneficial interests in the trust vest or terminate within a lesser period.
Minn. Stat. Ann. § 501A.01 (f). The new statute positions Minnesota to be competitive for trust administration business alongside the over 30 other states which have already elongated their RAP statutes to allow for trusts older than 90 years. Some states, like South Dakota for example, have even abolished the RAP altogether and now allow perpetual dynasty trusts. Previously, some Minnesota residents were considering other states for their trusts due to the unfavorable tax implications of a 90-year legacy trust compared to longer lasting options. This is no longer the problem it once was as Minnesota’s new 500-year legacy trust provides a competitive option from which to preserve assets over many generations.
Generation Skipping Transfer (GST) Tax
The GST tax was created in 1986 by congress to prevent people from avoiding estate taxes. Distributions from a trust (or asset transfers generally) are GST taxed when they skip a generation. Each time property passes hands it is normally subject to gift or estate taxes as high as 40% unless an exemption applies; additionally, if the property is skipping a generation (like an inheritance given to a grandchild from a grandparent), such inheritance is taxed both by estate taxes and by GST tax at a flat 40%. Altogether, taxes can take up to 80% of an inherited dollar if it is skipping generations. Congress created an exemption to the GST tax which initially was only $1,000,000 at its inception in 1986 but has grown to $13.99 million per person. The GST exemption helps but does not fully solve the loss caused to wealthy families by this tax.
Benefits of a 500 Year Legacy Trust
Long-term legacy trusts (also known as dynasty trusts), are a huge benefit to those persons looking to take advantage of their tax savings. Tax savings stretch as high as 80% for each beneficiary generation if the unified gift and estate tax exemption of $15 million and the $15 million GST exemption (new numbers effective January 1st, 2026) are both used to fund the trust initially. Later generations can receive the benefit of the growth beyond the $15 million initial contribution at merely their own individual income tax rate without ever paying further estate taxes on the funds each time someone passes away. Saving on estate taxes in this way is especially beneficial for families whose descendants are expected to have significant assets of their own to transfer to their heirs because it allows future generations to utilize any then existing tax exemptions separately from their inherited lifetime interest in the trust fund. All the tax savings of a legacy trust means the money in a legacy trust is free to accumulate much faster for your descendants than by any other means.
Legacy trusts can also help create an orderly estate plan beyond just tax planning. For example, if descendants inherit a piece of the same property and then separately pass it on to other more numerous individuals at each generation as the descendants die, then the original property becomes incredibly divided potentially leading to intra family partition actions or business dissolutions down the road. Legacy trusts help prevent the sale of legacy farms and family businesses. Charitable giving can also be powerfully bolstered by the effects of a legacy trust through the creation of sustained streams of income for the designated non-profit cause for generations, although the tax treatment for charitable legacy trusts is different.
Best Practices
Work with an experienced planner to create a legacy trust because it can be complex to set up and choosing the right trustees is critical for the long-term success of the trust. Giving trustees, whether an individual or an institution, sufficient flexibility to appropriately manage the assets while simultaneously protecting the assets from misfeasance, taxes, and creditor claims is not for the inexperienced. Estate planning with a legacy trust and using the exemptions and exclusions available can preserve century or other dynasty assets for generations to come while saving taxes, managing Minnesota estate taxes and preserving something for family which is worth keeping.
Conclusion
With the 500-year trust option now available, Minnesota residents have a powerful tool for long-term legacy planning. Minnesota trust law now rivals legacy offerings in other states while preserving assets from estate and GST taxes for descendants far into the future. Thoughtful and proper planning of a legacy trust can be a very useful way to manage or minimize estate taxes while preserving for those yet to come what has been built or been in the family for over a century.
