Georgia’s newly enacted revisions to certain trust and estate law provisions bring Georgia up to speed with many other states with similar provisions. The changes are effective July 1, 2018. This is a good move for Georgia. Click here for a link to the legislative bill with the numerous changes.
As an important first aside, I will blog later on how these changes add even greater benefit to my favorite trust – the inter-vivos QTIP marital trust (created during the lifetime of the spouses). I also will provide other short blog posts from time to time with certain commentary about these law changes.
For today’s post, I include the following discussion about how long trusts can now last under Georgia law:
360-Year Trusts. The allowable duration for a trust changes from 90 years to 360 years. This is referred to under trust law as the “rule of perpetuities”, and applies generally as a duration limitation for non-charitable trusts. A trust can now operate for 360 years before the rule of perpetuities law mandates its termination.
However, as a practical matter, I do not think 360 years in and of itself is significant. But, now having a period longer than the previous 90-year limitation helps make sure a trust can run long enough to cover (at a minimum) the trust creator’s (settlor’s) grandchildren’s entire lives.
In other words, making sure the grandchildren get the asset protection benefit of the continuing trust for their entire lifetimes (rather than the trust having to terminate in 90 years, possibly before the deaths of the grandchildren; thus, the earlier termination removing the protective effect of the trust set-up for their benefit).
The reason I think the entire 360-year period is not significant is that the number of downstream descendants a settlor will have if his or her trust lasts 360 years will be geometrically expanded beyond anyone’s realistic ability to keep up with all the descendants. I have seen various projections indicating, on average for example, a person will have approximately 115,000 descendants in 350 years. This adds another level to the notion of “laughing heirs”.
The Delaware Tax Trap. This point relates to the new 360-year change. The Delaware Tax Trap is a complex part of trust tax law. It essentially triggers potentially punitive gift and GST tax results if a trust is changed where the duration of the trust is extended longer than the trusts’ initial governing rule of perpetuities.
For example, assume I created an irrevocable trust in 1980 (when the law allowed a 90-year duration which means the trust essentially must end in 2070). Is this trust now subject to the Georgia 360-year rule? [There are some extensions to this 90-year period that get into the notion of “lives in being”; but I do not get into that point for this blog. You also can read one of my earlier blog posts on a creative potential use of the Delaware Tax Trap. Click here for my earlier post.]
Under this Delaware Tax Trap rule, the tax law provides that if I extend the duration of my existing 1980 trust beyond its then-applicable 90-year period, the result is that I am deemed for gift and GST tax purposes to have withdrawn the trust property and re-contributed the property to the extended-duration trust. In other words, I am treated as making a gift to the extended trust. This Delaware Tax Trap is a very esoteric tax law concept as a practical matter, but is an issue that most trust tax lawyers have many times grappled with (and debated) in great detail as part of their trust planning.
Below is my key comment for this blog post about Georgia and the the Delaware Tax Trap.
The above recent Georgia 360-year change to its trust and estate laws states “All laws and parts of laws in conflict with this Act are repealed.” Does this mean the prior 90-year limitation disappears with no continuing effect for an existing trust?
I am merely raising the above question and have not yet fully examined the scope of an answer. Nor does a simple, quick answer jump out at me at this time. More broadly, the question becomes: “How best do trust lawyers deal with this new extended 360-year rule of perpetuities both for existing trusts and in creating new trusts?”
This 360-year rule of perpetuities question needs to be on every trust checklist.