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Purpose is a powerful concept. To have purpose is to have a defined direction, to exercise intentionality, and to maintain a sense of meaningful, well-planned impact. A “purpose trust” then, is aptly named. It is a trust that, as you might guess, is established to carry out a specific purpose and further a particular non-charitable or private goal. Notably, it does not have ascertainable beneficiaries as does a traditional trust; rather its purpose defines its function.
New Hampshire is one of a limited number of states that allows non-charitable purpose trusts. See RSA 564-B:4-409. As long as the trust meets prescribed statutory requirements, it can provide a valuable vehicle to effect a settlor’s goals for an unlimited duration.
In New Hampshire, as elsewhere, a traditional trust requires: 1) assets from a settlor - the person who creates and funds the trust; 2) a trustee - the person who administers the trust and has a fiduciary duty to the beneficiary; and 3) an identifiable beneficiary - the person who benefits from the trust. The point of a trust is to benefit the identified beneficiary pursuant to the settlor’s intent as expressed through the trust’s terms, with a primary consideration being tax-efficient wealth transfer. Under common law, without a beneficiary, a trust will fail as there is no one with a legal interest to enforce the trust’s terms.
A purpose trust, on the other hand, does not have a beneficiary and is not necessarily designed for tax efficiency and wealth transfer (although it may accomplish those goals). As it has no beneficiary, there is no one with legal standing to ensure the trustee carries out the settlor’s intent. To solve for enforceability, the New Hampshire Trust Code provides that a purpose trust’s provisions may be enforced by a trust advisor, trust protector or other designated fiduciary – i.e., someone keeping tabs on the trustee who can stand-in as the legal personification of the specific “purpose.” In the absence of a named “enforcer,” the probate court may appoint someone to serve in that capacity.
New Hampshire purpose trusts are closely aligned with legacy and preservation. While there is no real limit to the “purpose” that a purpose trust can serve1, some more common uses include:
• The ownership of family business interests;
• Ownership and maintenance of a beloved family vacation home;
• Providing for the maintenance and upkeep of collectibles such as artwork, jewelry, and antiques;
• Holding intellectual property or publishing rights;
• Providing for the care of a family pet; and
• The maintenance of a family burial plot.
By way of example, placing a family business into a purpose trust can ensure that it remains independent, mission-driven, and aligned with a family’s vision and values. At the same time, a purpose trust can protect the business from internal family disputes, family members’ creditors, and generational succession issues, creating long-term stability for the enterprise and its employees2. Similarly, placing real estate such as a family vacation property into a purpose trust can ensure that it remains available for family members while also providing for its care and upkeep. Maintaining a family property in this way can reduce or avoid conflict among heirs by removing ownership disputes and duties, can provide creditor protection, and can avert succession issues.
No matter the purpose of a purpose trust, the document itself can be tailored to provide specific mechanisms for meeting the purpose, including governance and management, family input, and rules concerning use and access. Moreover, in New Hampshire, purpose trusts may be perpetual trusts, not subject to a limited duration. The lack of a prescribed end date allows a purpose trust to continue for as long as the purpose is viable.
Whether or not to use a purpose trust is a fact specific analysis and should not be undertaken without due consideration and consultation with a qualified legal professional. However, in the right circumstances it can support a continuation of family vision, values and legacy for generations to come.
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1 Pursuant to RSA 564-B:4-404, the purpose of a purpose trust (and all other trusts) must be “lawful, not contrary to public policy, and possible to achieve”).
2 Patagonia is perhaps the most famous use of a purpose trust for business ownership and continuity. In August of 2022, the Chouinard family transferred the voting stock of Patagonia to the Patagonia Purpose Trust to ensure the company’s continued independence as a for-profit socially responsible business, and that its profits are used to fight climate change. David Gelles, Billionaire No More: Patagonia Founder Gives Away the Company, New York Times (Sept. 14, 2022), https://www.nytimes.com/2022/09/14/climate/patagonia-climate-philanthropy-chouinard.html?smid=nytcore-ios-share&referringSource=articleShare
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