Various types of trusts have been integral to estate and tax planning for decades and remain critical tools for individuals and families. However, one potential drawback has been what is called the “Rule Against Perpetuities,” which has traditionally limited how long trusts can last. An option called a “dynasty trust,” which helps to address this limit, is becoming more common and could be a valuable estate planning tool moving forward.

How the Old Rule Limited Trusts

The original intent behind the Rule Against Perpetuities was primarily to prevent land from being tied up for generations in wealthy families to promote free commerce and business. In effect, the law stated that a trust can only be in place until 21 years after the death of the last “life in being.”

In other words, once a trust became irrevocable (such as upon a person’s death), the trust was required to terminate and distribute all assets outright no later than 21 years after the death of the last living beneficiary at the time the trust became irrevocable.

Practically speaking, this meant that a trust could be in place for a maximum of three generations – such as a grandparent creating a trust upon death for their children “or descendants.” Assuming there are no great-grandchildren, the trust would have to terminate 21 years after the death of the last grandchild living at the time of the grandparent’s death. At that point, the trust would distribute assets to the great-grandchildren.

However, applying this rule proved complicated, and many states added a fixed 90-year maximum term for trusts. This period effectively also covered three generations, like the original rule.

While the Rule Against Perpetuities is not an issue for the majority of trusts, since most trusts are set up to end when the grandchildren are 35 years old (or a similar age), the rule can cause problems if there are significant age gaps between children and grandchildren – which is becoming more and more common in families.

The Dynasty Trust Offers a New Option

Because of the modern planning issues created by the old rule, in the early 1980s South Dakota became one of the first states to allow perpetual trusts, also called dynasty trusts. Several states have since followed suit, but because South Dakota was one of the pioneers, it has become one of the primary states used to create dynasty trusts for tax and estate planning purposes or for protecting “legacy” assets.

In 2025, Minnesota also allowed dynasty trusts. According to Minnesota’s new law, dynasty trusts can be in place for up to 500 years (this only applies to trusts created after August 1, 2025). Now, clients can create Minnesota dynasty trusts that can keep farmland or lake property in the family for generations.

For larger estates, a Minnesota dynasty trust could be used to reduce exposure to Minnesota’s estate tax, which has an exemption of $3 million per person that is not “portable” between spouses. This lack of portability means that upon the first spouse’s death, their $3 million exemption does not transfer to the surviving spouse – it is “use it or lose it” on the first spouse’s death.

Not only does a dynasty trust allow people to protect and preserve family property for multiple generations, it can also help families avoid having to pay the Minnesota estate tax at each generation. With the growing values of farmland and lake property, this can be a significant benefit.

What States in Bell’s Markets Allow

In North Dakota, the 90-year rule is still in place, but with South Dakota and now Minnesota allowing dynasty trusts, there may be pressure for North Dakota to update its law.

Arizona, meanwhile, changed its statute several years ago to adopt a 500-year rule, similar to Minnesota. However, the Arizona attorney general has given an opinion that this rule conflicts with a provision in the Arizona constitution, rendering the 500-year statute void. There have been no official legal challenges to Arizona’s 500-year statute in court, though, so technically the rule is still on the books for now.

As more states revisit trust laws, dynasty trusts are becoming an increasingly popular estate planning option for families looking to pass on wealth. However, dynasty trusts may not be right for every situation, so if you are interested in learning more or discussing whether dynasty trusts could work for you, contact our team today.

This article was published in the Q3 2026 issue of the Bell Wealth newsletter.