Debate over whether Nevada’s top judges validated the state’s dynasty trusts may seem esoteric but the stakes for planners and jurisdictions jockeying for priority on the high-net-worth map are extremely high.
A few weeks ago, noted Las Vegas estate attorney Steve Oshins was crowing that simmering questions surrounding Nevada’s perpetuities statute had been settled.
He’s completely convinced he’s still in the right. But his counterparts in other states aren’t about to let him win the point without exhausting every logical weapon they have.
And with two of the biggest players on the national stage – Oshins and the Blattmachr family of Alaska – openly trading shots across the bow, it looks like what was once a dormant controversy is now blazing hotter than ever.
Fine points add up to $100 billion in play
The distance between the warring factions adds up to whether a seemingly tangential comment from the Nevada Supreme Court represents an explicit endorsement of the state’s dynasty trust statutes or simply a point of information.
Oshins insists that by even mentioning the statutory 365-year trust period, the judges were probably sending a message to out-of-state critics who questioned whether the rule would hold up to a state constitutional ban on perpetuities.
The timing, as he says, is auspicious. And the ruling goes out of its way to point out “over and over and over” that the state legislature is free to interpret and modify the state constitution as it sees fit.
The Blattmachrs have fired back that any veiled contextual statement here would be at best tricky to interpret, much less apply in a constitutional challenge.
Jonathan Blattmachr, a key architect of Alaska’s trust code, questions whether his “friend Steve Oshins” might be leaping to conclusions, while nephew Matt points out that “the decision does not even appear related to trusts” in an upcoming article on the estate planning ramifications.
“Despite the contention by some that the recent decision . . . eliminates any question concerning the invalidity of the Nevada statute permitting trusts to last for 365 years,” Matt writes, “a careful review of this well written decision does not, in fact, seem to do so.”
These are fighting words in the elite estate planning world. With an estimated $100 billion in cross-state trust assets in the balance, there’s good reason for both sides to read so deeply between the lines.
Nevada guards its position as one of the most attractive trust jurisdictions in the country extremely jealously. Its closest rivals – Delaware, Alaska, South Dakota – are constantly looking for an opening to take the upper hand.
If the state constitution technically overrules more recent statutes that let non-charitable trusts run longer than 90 years, then its prestige fades in the eyes of ultra-high-net-worth families looking for the best place for their money.
Once again, the distinctions may appear narrow, but every infinitesimal edge makes a difference as people with enough money to last for more than a few generations weigh the decision of where to park immense sums for centuries.
And with that much money on the table, the fine shadings of risk cast a huge shadow. If a trust created in one state has a lower chance of surviving a challenge from creditors, rival heirs or the IRS, the family’s advisors will note it and move on.
That’s why the knives are out. Oshins says the latest decision confirms that Nevada dynasty trusts would survive a constitutional challenge. The Blattmachrs say the hypothetical outcome remains in doubt.
So who’s right?
I’m not going to pick sides and none of the third-party bystanders I talked to were especially eager to do it either.
Bob Moshman, a New Jersey attorney and publisher of the Estate Analyst, threads the diplomatic needle.
“Nevada’s Supreme Court doesn’t specifically rule on the 365-year limit,” he points out in apparent accord with the Blattmachr position. “Yet the court goes well out of its way to pay respect to the state legislature as the source of public policy and even states the 365-year limit as the law of the land.”
As Moshman points out, the recent outbreak of controversy here derives from an article the Vanderbilt Law Review published last summer from Harvard professor Robert Sitkoff and Chicago lawyer Steven Horowitz.
The article questions the idea that any statute in jurisdictions like Nevada – as well as Wyoming, Tennessee, North Carolina and Arizona – explicitly overrides what’s written in each state’s constitution.
Moshman calls it “a brilliant 54-page speculation,” but warns that any court that starts to overturn rules that have been on the books for years if not decades starts to look like a “constitutional bogeyman” – especially when there are pragmatic considerations to consider.
“Is this court that just paid homage to the legislature going to kill the state’s dynasty trust business?” he asks. “No. You have a better chance of seeing a Nevada Jackalope.”
However the wind blows, rich families are still going to park their money in the states that offer the surest situation and best overall protection in the here and now.
Whatever happens, they’re not going to settle for the paltry 90 years that the default trust code provides. They’re going to demand that their trusts be set up in jurisdictions that give the great-grandkids at least a shot at partaking in the family fortune before the IRS gets its cut.
“A dynasty trust should be the cornerstone of virtually every wealth transfer plan for families desiring to protect their wealth,” sums up Robert Keebler, an estate planner in Wisconsin.
“When designed correctly and sitused in the proper jurisdiction, you obtain protection from both future estate taxes and from the claims of your heirs’ creditors and spouses, “he explains.
“Absent a dynasty trust, $1,000 of wealth becomes $216 or 21.6% after the estate tax is imposed from the matriarch and patriarch [down] to their great-grandchildren.”
With that in mind, Keebler’s thoughts turn to figuring out how to best fund a theoretical trust. Picking one state out of several that offer blue-ribbon protection is almost a secondary concern.
