by Francis Burton Doyle, Esq., WealthPLAN
There is a hazard in seeing a movie which involves a technical legal issue that you encounter regularly in your law practice. The hazard is that you find yourself focusing on solution to the legal issue at hand and become distracted from other matters which unfold in the movie. This happened to me recently when I went to see the movie “The Descendants.” The movie stars George Clooney, whose character, Matt King, is a lawyer who is the trustee of a family trust which is set to terminate in seven years because of the Rule of Perpetuities.
The Rule of Perpetuities requires that trusts terminate 21 years after the death of a life in being at the creation of the trust. Because the operation of the rule is specific to a particular set of descendants, its limitation on the duration of particular trust varies from family to family. However, in most cases a strict application of the rule results in a trust having a term of between 75 and 100 years.
Most lawyers view the rule with disdain because it is applied in a didactic fashion with consequences which are often capricious and defy common sense. More and more states are eliminating or tempering the rule. A recent movement to repeal the law in California failed in the legislature. However, California has enacted perpetuities reform which results in a trust having a fixed maximum term of 90 years or the period proscribed by the rule.
Clooney’s character’s response to the impending termination of the trust because of the rule was to consider a sale of the enormous amount of prime ocean front Hawaiian real estate it owned so that cash could be distributed to the beneficiaries upon the trust’s termination.
I could not help but consider alternatives to Clooney’s character’s dilemma. To me the best alternative was to place the land into a family limited partnership and then distribute shares in the partnership to the beneficiaries upon the termination of the trust. This would allow for the centralized management of the real estate beyond the existence of the trust. A limited partnership rather a corporation was for me the entity of choice because it would eliminate a tier of taxation in the event the land was eventually sold. In my mind, a limited partnership was superior to a limited liability company because the general partner of a limited partnership has much more authority and management control than the manager of a limited liability company.
The legal lessons learned from “The Descendants” dwarf in comparison to the emotional ones presented in the main plot. However, the idea that a trustee has a viable alternative to having to sell valuable real property for cash in order to effectively distribute a trust is an important one which is of benefit to many families.
Quote To Ponder
“Investment bankers, entrepreneurs, dentists, accountants, secretaries, even homemakers are hiring coaches to help guide them in everything from
changing careers to starting a business to balancing work and family.”
~Christian Science Monitor
About the Author:
Francis Burton Doyle, Esq., is the founder of WealthPLAN, with over 30 years of experience in Tax, Estate-Planning Probate, Trust Administration and Litigation. He is Certified Legal Specialist, Taxation Law and Probate, Estate Planning and Trust Law (California State Bar). Frank is the Past President of both the Santa Clara County Estate Planning Council & the Silicon Valley Planned Giving Committee. Frank is also the Past Chair of the Planning Committee, Annual Jerry A. Kasner Symposium, Santa Clara University, School of Law. Mr. Doyle provides all the course development and instruction for the Advanced Legal Training Institute.
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