THE UNIFORM STATUTORY RULE AGAINST PERPETUITIES AND THE GST TAX: NEW PERILS FOR PRACTITIONERS AND NEW OPPORTUNITIES

• Published in: Real property, probate and trust journal probate and trust journal, 1995-07, Vol.30 (2), p.185-212
• Main Author: Dukeminier, Jesse
• Format: Article
• Language: English
• Subjects: Appointments & personnel changes; Attorneys; Common law; Dynasty trust; Estate planning; Estate taxes; Federal regulation; Generation skipping tax; Goods and services tax; Grandfather provisions; Power of appointment; Powers of appointment; Probate law; Property trusts; Real property; Regulation; Rule against perpetuities; Rules; Tax exempt organizations; Tax exemptions; Tax rates; Taxation; Trusts; Vested benefits; Vests
• ISSN: 0034-0855; 2159-4538; 1540-8469; 2329-6127

The Uniform Statutory Rule Against Perpetuities (USRAP) drafters overlooked the generation-skipping transfer tax (GST) when they proposed an alternative 90-year perpetuities period, unwittingly creating a tax trap resulting in loss of the GST tax exemption. After the Treasury signaled its acceptance of the 90-year period, the drafting committee added to USRAP a complicated provision to save the GST tax exemption when a trust settlor or donee of a power attempted to obtain the longer of the 2 perpetuities period. Although USRAP eliminates lawyer liability for violating the rule against perpetuities, it creates new potential malpractice liabilities for lawyers involved in trusts exempt from the GST tax. At the same time, USRAP makes possible the extension of GST tax exemption for a grandfathered trust by converting such a trust into a 90-year trust. One remarkable and probably unintended consequence of USRAP is that enforcement of perpetuities policy against overlong trusts has been largely turned over to the US Treasury in USRAP states.