Undoing RAP Repeal?
Joel C. Dobris (Professor of Law, University of California—Davis) has published his article Undoing Repeal of the Rule Against Perpetuities: Federal and State Tools for Breaking Dynasty Trusts, 27 Cardozo L. Rev. 2537 (2006). Admitting to be a “trust guy”, he looks at the Rule through that lens.
He begins by noting that perpetual trusts are here to stay, but goes on to say that there are mechanisms to terminate them.
First, there is federal tax law. “Taxes will cause fiduciaries with the power or determination to undo their trusts. Fiduciaries without power can lobby for changes in state law. At worst, tax payments will weaken trusts.”
Second, bankruptcy law is also an option. “We could change the bankruptcy statute. That would be useful to the extent these trusts are asset protection trusts. We could change our definition of fraudulent transfer.”
Third, he notes that while property law could be a solution at the state level, Congress can really regulate most trusts. For example, “by canceling only the interests of unborn beneficiaries”, Congress could “legislate perpetual trusts out of existence in a reasonable fashion.”
Fourth, in turning to the states, he notes that states could either “repeal their race to the bottom statutes” or “give courts a cy pres power over perpetual trusts.”
Concluding he says,
Courts have been trying to find ways to deal with asset protection trusts. They’ll try to find ways to deal with this, too. I can’t believe that reverence for some dead guy’s intent is going to determine major outcomes. We have the capacity to eliminate economically inefficient property forms. Maybe we don’t have to end all perpetual trusts, just the outliers where the abuses are untenable. As Justice Weintraub said, “Property rights serve human values. They are recognized to that end and are limited by it.”