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Nevada Dynasty Trusts Strike Gold In Perpetuities in Bullion Monarch

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Perpetuity (noun) ~

1. a thing that lasts forever

2. a state or quality of lasting forever.

How long is perpetuity?

By the above, perpetuity sounds really, really, mind-boggling, unbelievably long, and it is. Just how long a perpetuity may exactly be we will leave to the philosophy grad students as yet another imponderable that they can waste their parents' tuition money while pondering.

For our purposes here, a perpetuity represents an attempt by somebody to tie up property for a very long time, and well after their own biological expiry. Control freaks who insist on dictating the passage of history from their grave have long attempted to place their property into some weird legal bondage so that it is kept "in the family" for not just the next generation, but for as many generations after that as one's DNA can be more-or-less accurately traced.

If this hints of the royal lines of the European monarchs, then it should not be at all surprising that the English Lords in their continuing attempts to perpetrate their ancient feudal system. Thus, the Lords attempted to create restricted deeds to property by which lands were handed down in "fee tail" to only future generations that were handcuffed by the deeds to keep the property in the family. Later, and also by way of attempting to evade taxes, these same Lords tried to do the same thing by creating trusts that last forever.

But by the 1500s, a more enlightened English society realized that to allow a few folks to tie up vast tracks of property for many centuries wasn't at all good for the general public interest and, in fact, it was a very bad thing in terms of stifling the nation's growing commercial economy.

These concerns manifested themselves to a degree in the Statute of Uses (1536) and Statute of Wills (1540), which short-circuited the attempts of landowners to restrict the ability of others to sell their former property. But it was not until 1682 that the intergenerational shackles were finally thrown off inherited property, when the English Law Lords heard the Duke of Norfolk's Case. There, Henry, the 22nd Earl of Arundel, had created a scheme to tie up his property so that it could only pass to his four sons, one-by-one in succession, and then to his biological male heirs.

But when Henry Jr., the second son, got his hands on the property, he didn't want to see it pass to his younger brother, Charles, the third son. Taking the issue to the House of Lords, Henry won with the Law Lords ruling that it was wrong for somebody to tie up property beyond the lives of those living at the time of the attempted devise (a/k/a a "life in being") -- which meant that Henry Sr.'s restrictions failed, even though both his sons, Henry and Charles, were still quite alive.

A later case, Cadell v. Palmer (1833), stated what would become the "modern rule", which is that an attempt to restrict property past a "life in being", plus 21 years. It is this Rule Against Perpetuities ("RAP") that has confused and confounded both law students and bar applicants for nearly two centuries.

Of course, between the time of the Duke of Norfolk's Case in 1682 and Cadell v. Palmer in 1833, England found itself short of 13 of its more irritating yet highly profitable colonies on the North American continent. Among the things the colonies took with them on the way out the door was the English legal system, though not just a few of the Founders such as the Paris-educated lawyer Thomas Jefferson, having a dislike for nearly all things English, thought that the new nation should instead adopt the Roman Civil Law system.

The end result of the states importing the English common law in the absence of their own constitutional and statutory law was that the Rule Against Perpetuities became a part of American law.

Which brings us the closing years of the U.S. Civil War, and the desire of the Lincoln Administration to pack Congress with "good Union men". This included, among many other things, recognizing statehood for what was then considered a vast wasteland sparsely populated by little more than silver miners and the occasional railroad stop.

The Silver State was thus born in 1864, bearing the moniker "Battle Born" although of course no battle was actually fought there (excluding the occasional squabbles with certain Mormon who were then resisting federal authority), and named Nevada which was an old Spanish word for "snow" owing to the occasional snow covered peaks of its mountain ranges.

When Nevada adopted its Constitution that same year, it included the following provision in Article XV, Section 4:

Perpetuities; eleemosynary purposes. No perpetuities shall be allowed except for eleemosynary purposes.

To dispose of the excepting clause, the term "eleemosynary" is a derivative of the Greek word "eleemosune", which essentially means "compassion", and the legal meaning of the term translates to the modern "charitable". Thus, in Article XV, Section 4, one could quite accurately simply substitute the term "charitable" for "eleemosynary".

It is quite important to note that the Nevada Constitution does not, as has been recently suggested (quite inaccurately), define perpetuities as a life in being plus 21 years. As a matter of simple constitutional construction, this allows the Nevada legislature or courts to define "perpetuities" as being any such length as they may in their wisdom determine to be reasonable.

For the 123 years between 1864 and 1987, and without any contrary guidance from the Nevada legislature, it was left to the Nevada courts which simply adopted the common law period as being as good as any other.

This brings us to 1987, the year that the Nevada legislation decided to define a statutory length for "perpetuities" as stated in Article XV, Section 4, as essentially that of the common law Rule Against Perpetuities, being a life in being plus 21 years. Later, in 2005, the Nevada legislature again amended the statutory definition of perpetuities to essentially adopt an alternative 365 year period.

This latter change was occasioned by the desire of the Nevada legislature to promote the business of trust companies and trust attorneys in the Silver State, by allowing the formation of so-called "Dynasty Trusts" that would theoretically be more efficient from a federal gift and estate tax planning viewpoint (a discussion beyond the scope of this article, but discussed by many other writers).

Thus, as we sit here today, Nevada Revised Statute section 111.1031 provides in full:

1. A nonvested property interest is invalid unless:

(a) When the interest is created, it is certain to vest or terminate no later than 21 years after the death of a natural person then alive; or

(b) The interest either vests or terminates within 365 years after its creation.

2. A general power of appointment not presently exercisable because of a condition precedent is invalid unless:

(a) When the power is created, the condition precedent is certain to be satisfied or become impossible to satisfy no later than 21 years after the death of a natural person then alive; or

(b) The condition precedent either is satisfied or becomes impossible to satisfy within 365 years after its creation.

3. A nongeneral power of appointment or a general testamentary power of appointment is invalid unless:

(a) When the power is created, it is certain to be irrevocably exercised or otherwise to terminate no later than 21 years after the death of a natural person then alive; or

(b) The power is irrevocably exercised or otherwise terminates within 365 years after its creation.

4. In determining whether a nonvested property interest or a power of appointment is valid under paragraph (a) of subsection 1, paragraph (a) of subsection 2 or paragraph (a) of subsection 3, the possibility that a child will be born to a person after his or her death is disregarded.

5. If, in measuring a period from the creation of a trust or other property arrangement, language in a governing instrument seeks to disallow the vesting or termination of any interest or trust beyond, seeks to postpone the vesting or termination of any interest or trust until, or seeks to operate in effect in any similar fashion upon, the later of:

(a) The expiration of a period of time not exceeding 21 years after the death of the survivor of specified lives in being at the creation of the trust or other property arrangement; or

(b) The expiration of a period of time that exceeds or might exceed 21 years after the death of the survivor of lives in being at the creation of the trust or other property arrangement,

that language is inoperative to the extent it produces a period of time that exceeds 21 years after the death of the survivor of the specified lives.

Numerous other states have similarly amended by statute their Rule Against Perpetuities for pretty much the same tax reason, and the trust companies and trust attorneys in these states actively compete with each other for that sort of trust business.

This competition among states for Dynasty Trust business has mostly been fair, but then sometimes not so fair -- in fact, sometimes it has been quite foul. One of these foul attempts has been the recent and quite false suggestion that the 2005 statutory changes to Nevada's Rule Against Perpetuities were somehow violative of Nevada's Constitutional prohibition against perpetuities.

Which brings us to, of all things, a mining case.

The Rule Against Perpetuities does not only apply to private individuals and trusts, but effectively to all interests in property, including mining interests. When two mining companies got into a dispute regarding their royalty agreement and the application of the common law Rule Against Perpetuities before the U.S. Court of Appeals for the Ninth Circuit, that court certified (in English, "asked") that question to the Supreme Court of the State of Nevada, to which the latter responded in a lengthy opinion which resolves the issue entirely.

The Nevada Supreme Court first noted that the term "perpetuities" in the Nevada Constitution is not somehow frozen in time to 1864:

As a creature of the common law, the rule against perpetuities is not static. Our Constitution may have adopted the common-law rule, but it did not freeze the rule's application. [] The meanings of the Constitution's words remain constant, but their application may vary with the circumstances of time and place. [] For example, when interpreting the Second Amendment, the United States Supreme Court reasoned that “arms” was not limited to weapons in existence at our nation's founding . . ..

The Court then noted that the English common law applies only to the extent that it is not in conflict with other Nevada or federal law, or where the purposes of the old common law rule would not be contravened by its application; for instance, the common law Rule Against Perpetuities has often not been applied in certain commercial settings.

Since the Nevada legislature had by another statute (NRS 111.1037) determined that, as a matter of policy, the Rule Against Perpetuities, that non-donative transfers (i.e., transfers not made by gift) should be excluded from the Rule Against Perpetuities, that legislative change to the definition of "perpetuities" was completely appropriate.

In other words, the Nevada Supreme Court has definitively held without equivocation or dissent that it is completely within the proper orbit of the Nevada legislature to define what does, and what does not, constitute "perpetuities" under Nevada's Constitution.

While this decision did not deal specifically with the similar Nevada Revised Statute 111.1031, the logic of the decision -- the Nevada legislature is well within its rights to define what constitutes "perpetuities" -- should apply with equal force to that provision as well.

Those who might claim otherwise are simply spitting sour grapes, since there is utterly no reason why the Nevada Supreme Court might reach a contrary decision under NRS 111.1031. Thus, Nevada's 365-year Rule Against Perpetuities is quite sound, and one should beware the dishonest attempts by those in competition with Nevada for Dynasty Trust business to claim otherwise.

CITE AS

Bullion Monarch v. Barrick Goldstrike, ___ Nev. ____, 2015 WL 1402635 (Mar. 26, 2015) (En Banc).

This article at http://onforb.es/1JDw1mx and http://goo.gl/04dR2e