Perpetuities Reformers Beware: The USRAP Tax Trap

Abstract:     
This Article discusses the existence of a possible tax trap as a result of the Uniform Statutory Rule Against Perpetuities (“USRAP”) approved by the National Conference of Commissioners on Uniform State Laws (“NCCUSL”). This Article provides a basic explanation of the affect of USRAP on the common law Rule Against Perpetuities as well as a basic explanation of the federal generation-skipping transfer (“GST”) tax system. The authors asserts that the USRAP amendment designed to deal with the Treasury’s objection to trust termination clauses prepared by trust lawyer’s seeking the maximum perpetuities period for those subject to GST taxes in USRAP states, will likely have a perverse effect on those not concerned with GST taxes by defeating their reasonable trusts. The Article concludes that The USRAP tax trap vividly illustrates that the USRAP’s 90-year wait-and-see period is not always the equivalent or a perpetuities saving clause using measuring lives in being. The author goes on to explain that the federal position that grandfather protection is lost for GST tax purposes when a special power is exercised so that vesting may be postponed for 90 years, if longer than lives in being plus 21 years is not necessarily true.

Number of Pages in PDF File: 9

Keywords: Rule Against Perpetuities, RAP, uniform statutory rule against perpetuities, USRAP, Federal generation-skipping tax system, GST, wait-and-see period, grandfather protection

Accepted Paper Series