North Carolina Business Litigation Report

NC Court Of Appeals Affirms That Dynasty Trusts Don't Violate The Rule Against Perpetuities

What is a "dynasty trust"?  And what does that have to do with business litigation?

To answer the second question first, not much. But a case decided today by the North Carolina Court of Appeals, which affirms the validity of a 2007 statute which permits dynasty trusts, originated in the North Carolina Business Court. So it gets mentioned on this blog.

A dynasty trust is a trust designed to exist for multiple generations of a family, potentially forever, usually avoiding generation skipping tax. The North Carolina Legislature facilitated the creation of such trusts when it enacted N.C. Gen. Stat. §41-23 in 2007.

But that legislation, titled "Perpetuities and suspension of power of alienation for trusts" raised issues whether it violated the Rule Against Perpetuities, which has constitutional roots in North Carolina.

Section 34 of Article I of the state Constitution says that "[p]erpetuities and monopolies are contrary to the genius of a free state and shall not be allowed." A year ago, in Brown Brothers Harriman Trust Co., N.A. v. Benson, Judge Diaz ruled in an unpublished opinion that the statute did not conflict with the Constitution.

The Court of Appeals ruling today affirmed that decision. It holds that a trust created per Section 41-23 "may remain valid in perpetuity" so long as the provisions of the statute are complied with. That means that "the trustee has the power to sell, either expressed or implied, or . . . there exists an unlimited power to terminate the trust in one or more persons in being."

If you want the detailed analysis, which includes discussion of "estate entails," and "fee tail estates" and Supreme Court decisions nearly 200 years old, you'll have to read the opinion. If you want to brighten the day of an estate planning lawyer or tax lawyer with the happy news about dynasty trusts, you can forward this post to him or her by clicking on the little envelope icon at the bottom.

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Mack Sperling
Brooks Pierce, LLP
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