Send This On To Your Favorite Trust And Estates Lawyer: The NC Business Court Rules That Trusts Can Be Exempt From The Rule Against Perpetuities

The excitement from the Business Court today is a ruling on, of all things, the Rule Against Perpetuities.  The Opinion is in Brown Brothers Harriman Trust Co. v. Benson.

The subject of perpetuities is addressed in the North Carolina Constitution.  It says that "perpetuities and monopolies are contrary to the genius of a free state and shall not be allowed."  N.C. Const. Art. I, §34.

In 2007, however, the Legislature enacted G.S. §41-23, which repealed the common law Rule Against Perpetuities as well as the Uniform Statutory Rule Against Perpetuities (N.C. Gen. Stat. §41-15) as they apply to trusts created or administered in North Carolina.  N.C. Gen. Stat. §41-23(h).

The constitutionality of that statute was at issue in the Brown Brothers case, which involved a Trust formed by the grantor as a "perpetual or dynasty trust." With this type of trust, the principal is never transferred to any beneficiary.  Successive generations receive distributions, and the beneficiaries potentially avoid generation skipping taxes.  In the case of the Trust formed by Mrs. Benson, the Trustee had the specific authority to transfer title to the property owned by the Trust, a key factor in the Court's ruling.

Mrs. Benson's children instructed Brown Brothers to terminate the Trust immediately, contending that it violated the Rule and that the 2007 statute was unconstitutional.  This gave rise to the controversy before the Business Court, which held the Trust valid and the statute constitutional.

The Opinion by Judge Diaz is quite short.  It holds as follows

1. Section 41-23 of the North Carolina General Statutes, denominated as Perpetuities and Suspension of Power of Alienation for Trusts, (hereinafter the “Act”) is a valid exercise of the General Assembly’s legislative power to repeal both the common law Rule Against Perpetuities and the Uniform Statutory Rule Against Perpetuities, as they apply to trusts in North Carolina;

2. The prohibition against “perpetuities and monopolies” found at Article I, Section 34 of the North Carolina Constitution applies only to unreasonable restraints on the alienation of property and not to the vesting of remote interests; and

3. Because Plaintiff (as trustee of the Benson Trust) has the power to transfer title to any and all property that is part of the corpus of the Benson Trust, either by sale or by distribution to the trust beneficiaries, the Court holds that the Benson Trust is valid under the Act and does not violate the North Carolina Constitution.

The classic book on the Rule Against Perpetuities was written in 1886 by John Chipman Gray, a Professor at Harvard Law School who is pictured at the top.  You can imagine my great delight in discovering that Google has digitized the third edition of his book, published in 1914.  You can download the whole thing and read it at your leisure.

Plaintiff's Brief in Support of Motion for Summary Judgment

Defendant's Brief in Opposition to Motion for Summary Judgment

Plaintiff's Reply Brief in Support of Motion for Summary Judgment

Amicus Brief of North Carolina Bankers Association

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