Purpose Trusts: A Modern Tool for Wealth Planning 

Wealth planning strategies are rarely about numbers alone, and traditional structures may not meet the complex long-term goals individuals seek to achieve. One planning concept that has gained increased attention in recent years is the purpose trust, designed to carry-out a defined objective rather than simply distributing assets to beneficiaries. 

Purpose trusts are not new, but their role in wealth planning has expanded as trust laws have evolved and families seek more durable ways to manage complex assets across generations. 

What is a Purpose Trust?

A purpose trust is typically established to fulfill a specific, stated purpose. Unlike traditional trusts, which are designed to distribute income and/or principal to beneficiaries, a purpose trust is focused on managing trust assets to further a defined goal. 

The goal might include owning and operating a family business, holding voting interests in entities, preserving key real estate or intellectual property, or serving as a long‑term holding vehicle for investment assets. Because there are no beneficiaries with enforceable rights, purpose trusts typically rely on a person or entity designated as the trust protector to serve an oversight role and ensure the trustee remains faithful to the trust’s mission. 

Not all jurisdictions permit non‑charitable purpose trusts, but many states and leading trust jurisdictions have adopted statutes specifically authorizing them, subject to defined safeguards. 

Tax Planning with Purpose Trusts

Purpose trusts are often used in tax planning where control, continuity, and asset separation are more important than current economic benefits. When the main goal is adherence to a set of core values for those who succeed you, a purpose trust may provide the solution.

One common application involves closely held businesses. Rather than distributing business interests outright or through beneficiary‑focused trusts, a purpose trust can hold stock or ownership interests long term. This can simplify succession planning, reduce the risk of fragmented ownership, and support centralized governance—particularly important for businesses expected to operate across generations. 

From an estate tax perspective, assets transferred to a properly structured purpose trust may be removed from an individual’s taxable estate. While the tax outcome depends on how the trust is designed and how much control the settlor retains, purpose trusts can serve as part of a broader strategy to limit estate tax exposure while preserving long‑term objectives. 

The income tax treatment of gains associated with purpose trust assets is flexible. The settlor may wish to see the trust itself subject to tax, or income may be distributed to the individuals who established the trust or other beneficiaries.

In addition, expenditures made by the trust in furtherance of its purpose must be evaluated to determine whether they confer benefits on related parties that could have tax implications. Coordinating trust language with the desired tax outcomes will be part of the strategic decisions in developing a purpose trust to ensure its intentions are fulfilled.

Purpose trusts also appear in planning involving international families or complex ownership structures, where naming individual beneficiaries could trigger unfavorable tax consequences, disclosure obligations, or repeated restructuring. In these cases, a purpose‑driven solution can provide stability while accommodating changing family circumstances. 

When a Purpose Trust Makes Sense 

Purpose trusts are not designed for routine family wealth transfers or simple estate plans. Instead, they tend to be most effective where planning goals are long‑term, assets are complex, and governance considerations play a central role. 

For families seeking to maintain control over strategic assets, reduce future tax friction, and adhere to certain values as circumstances change, purpose trusts are quite compelling. 

Planning for the Future

Purpose trusts reflect a broader shift in wealth planning, from focusing solely on who receives assets, to emphasizing how assets are managed and preserved over time. When thoughtfully implemented as part of an integrated tax and estate planning strategy, they can provide structure, stability, and flexibility well beyond what traditional trusts are designed to offer. 

A purpose trust may provide the perfect intersection of business interests, family legacy, and core values. As with other advanced planning techniques, success depends on clear objectives, careful drafting, and coordination between legal, tax, and financial goals.

If you’re considering how to secure your family’s legacy and protect complex assets for future generations, now is the time to explore whether a purpose trust is right for you. Consult with one of our trusted advisors to discuss how this innovative structure could support your long-term goals and values.