Is there a minimum or maximum allowable term for an Equity Holding Trust?
Yes. It is reported in the literature that any land trust whose term is deemed a contrivance to avoid payment of income tax would (could) be challenged by the IRS and declared a “dry” or “failed” trust. For example, if the trust’s term clearly conflicted with time requirements of certain tax deferment or exemption provisions (e.g., tax-deferred exchange), the trust could be characterized as a non-standard corporate entity or a security agreement. A failed trust could [might] conceivably 1. Deprive the co-beneficiary of mortgage interest and property tax deductions; and/or 2. Create an untimely capital-gains tax event for the Settlor beneficiary. For these reasons only, it is recommended (though not mandatory) that two years be considered the minimum term for an Equity Holding Trust Regulations relative to Perpetuities would also compel a “land trust” term to be limited to no more than 20 years, or the length of the underlying financing on the trust property, whichever would be greater.
