The Supreme Court of the State of Nevada has shot down a Harvard law professor’s claim that Nevada’s 365-year rule against perpetuities is ineffective.
In an article published last year in The Vanderbilt Law Review titled Unconstitutional Perpetual Trusts, co-authors Steven J. Horowitz and Robert H. Sitkoff called the constitutionality of certain longer-term dynasty trust statutes into question. Horowitz is an associate attorney at Sidley Austin, and Sitkoff is a Harvard law professor.
Their primary claim was that dynasty trusts set up under the laws of a state with a state constitutional ban on perpetuities, but a long statutory term-of-years perpetuities period, violate the state’s rule against perpetuities. Nevada was one of the targeted states.
While marketers from competitor dynasty trust states jumped on the opportunity to use the Horowitz/Sitkoff article as a means of undermining Nevada, there was, at that time, a perpetuities case going through the Nevada court system.
The Nevada Supreme Court Rules
This is where the story takes a spectacular turn. As though it were scripted right from the start, a matter of only months after the Horowitz/Sitkoff article was published, the Supreme Court of the State of Nevada laid down the hammer and ruled contrary to the Horowitz/Sitkoff conclusion.
“In Nevada, the rule is codified in our Constitution: ‘No perpetuities shall be allowed except for eleemosynary purposes.’ Nev. Const. art. 15, § 4. But in 1987, Nevada adopted a statutory rule against perpetuities. See NRS 111.1031; 1987 Nev. Stat., ch. 25, §§ 2-8, at 62-65. The new statutes added a wait-and-see provision, which, as amended, gives contingent property interests 365 years to vest before they are invalidated. See NRS 111.1031(1)(b).”
The Horowitz/Sitkoff article was incorrect in asserting that the state legislature and courts could not alter the constitutional prohibition of perpetuities with changing circumstances and changing policy considerations.
According to numerous cases and treatises on the subject, the constitutional prohibition is a general statement of policy and does not freeze the constitutional provision.
With this new Supreme Court decision in the books, Nevada continues to be one of the leading dynasty trust states. In fact, having the Supreme Court specifically ratify its dynasty trust law may give Nevada a competitive advantage over states that have not had such a ruling.
Last year, the Trust Advisor polled its readership by asking which trust state is best. The only choices allowed by the poll were Alaska, Delaware, Nevada and South Dakota. Nevada won with 64% of the vote, followed by Alaska with 15% of the vote, South Dakota with 11% of the vote and Delaware with 10% of the vote. This poll dealt with all aspects of trusts, not just dynasty trusts.
Regardless of which state is best, probably even more important is to find a trust company in the chosen jurisdiction which has a long history of success, is trust-friendly and which charges reasonable fees. The Trust Advisor has a sister website that has a search function to help the user find a corporate trustee in the chosen jurisdiction.
About the Author:
Steven J. Oshins, Esq., AEP (Distinguished) is an attorney at the Law Offices of Oshins & Associates, LLC in Las Vegas, Nevada, with clients throughout the United States. He is listed in The Best Lawyers in America®. He was inducted into the NAEPC Estate Planning Hall of Fame® in 2011 and was named one of the 24 Elite Estate Planning Attorneys in America by the Trust Advisor. He has authored many of the most valuable estate planning and asset protection laws that have been enacted in Nevada. He can be reached at 702-341-6000, ext. 2, at firstname.lastname@example.org or at his firm’s website, www.oshins.com.