While statutory developments can provide the appropriate framework, it necessarily falls to the drafting attorney to develop a document appropriate to the circumstances. This can be a daunting challenge; the notion that one is drafting a document that in ideal circumstances will last forever is (or should be) enough to give even seasoned drafters pause. The process requires careful consultation with the family in order to achieve, if not consensus, at least understanding of the objective and parameters of the trust and its relationship to the other aspects of the family plan.
In the authors' experience, the dispositive provisions tend to be rather straightforward. Again, most clients are ill-advised to be overly specific in laying out the parameters of the Trustee's discretion in making distributions; the "incentive trust," often a misbegotten idea in the first place,7 does not make a good fit with the perpetual trust, with its twin objectives of permanency and flexibility. At the same time, if one thinks of the trust as an endowment, a family mission statement probably should be included, particularly when one considers the difficulties inherent in reading and interpreting a document (and the intent of its makers) two decades, let alone two generations or two centuries, after it was drafted. Similarly, although much should be left to the Trustees' discretion when it comes to making distributions, guidance as to the meaning of the standards for distribution-"health," "support," etc.-is advisable, if not indispensable.8
Apart from the family's goals and values, where much emphasis tends to, and should, be placed is on the fiduciary powers and appointment provisions. A perpetual trust that did not grant the full panoply of fiduciary powers would be rare indeed. Although there may be exceptions,9 most settlors will not seek to restrict the ability of the Trustee to manage the investments of the trust or to take other actions necessary to the administration of the trust. On the contrary, even in the case of a family-owned business most settlors are unlikely to want to mandate retention of a particular asset or assets indefinitely, but rather to provide the fiduciaries (however their responsibilities may be defined and allocated) with the power and authority necessary to deal with changing and unforeseen circumstances.
The Domestic Asset Protection Trust
Nearly simultaneously with the abolition of the Rule, many of the same states implemented even more radical legislation: in a complete break with centuries of trust law and public policy, these states permitted the creation of self-settled spendthrift trusts.10
While extraordinary for the law of trusts, the concept of an entity as a liability shield is hardly a new one. The corporate form is predicated upon the notion both that the shareholders' liability is limited to their investment, and upon the notion that the corporation's assets should be difficult for a shareholder's creditors to reach. This latter notion has been further refined in modern limited partnership and LLC statutes with the introduction of the "charging order" concept,11 which precludes an owner's creditors from reaching the entity's assets.
Nevertheless, the DAPT does represent a novel, and radical, development for trust law, so novel that substantial questions remain as to its efficacy. It is as yet unknown whether the DAPT will withstand challenge in court, particularly if a plaintiff is able to establish jurisdiction over the DAPT trustee in a state that has a strong public policy against self-settled spendthrift trusts-in other words, most of the 50 states other than those that have enacted DAPT statutes. Given the current state of the global economy, interest in, and challenges to, this vehicle is likely to increase substantially.
When used in conjunction with a perpetual trust, the DAPT may produce a favorable result. Consider, for example, the following structure:
1. A non-resident settlor establishes a non-grantor DAPT in Delaware.12 The trust provides for completely discretionary distributions to a broad class of beneficiaries, including the settlor.
2. Subject to the considerations outlined above and also to the fraudulent conveyance issues typical to any asset protection strategy, the trust assets should be protected from the settlor's creditors.