property to be in the control of your progeny in perpetuity

December 9, 2012 5:23 PM

Here's a little puzzle: you want a piece of property to be in the control of your progeny in perpetuity. You want to be certain that they don't up and sell it, and you especially want to be sure that future spouses don't get their hooks into it and force sale or forfeiture during divorce. How do you set things up to make this happen?

I know you are not my lawyer, tax adviser, estate planner, etc.

It is a real issue that I am mulling over but let's just leave it as a purely hypothetical situation to avoid potential liability, implied client relations, etc. Anyways for now it is nothing actionable, I am brainstorming options for a few years in the future.

I'd like to hear general ideas, but if you want a jurisdiction let's say it is a large tract of farmland in Atlantic Canada.

Could you set up a shell company to own it, a trust, and you and your family sit on the board? You are employees of this trust, which is why you can live there and take advantage of the property? Or what?

Please note that I am not asking if you think this is a good idea, or if it is moral to force my will upon future generations. I'm really looking for technical solutions to this puzzle only.

posted by Meatbomb to law & government (19 answers total)

Are you planning for it to earn income in such a way that it will be able to pay its own taxes, etc?

I don't know anything about Canadian law, but it would have bearing in the U.S. if I were looking at this.
posted by small_ruminant at 5:36 PM on December 9, 2012

I believe what you're looking for is an entail. They come up a lot in Victorian novels involving landed gentry. I'm not sure of their current legal status.
posted by alms at 5:39 PM on December 9, 2012 [4 favorites]

There are very well-established structures which prevent creditors of one family member (including ex-spouses and the taxman) from forcing the sale of family crown jewel assets when the rest of the family doesn't want to sell. That one family member might end up with his interest being taken directly or indirectly for the benefit of his creditors, but the rest of the family member owners can continue to hold and operate the asset and their respective interests as well.

However, these structures can't be used when the majority of the family wants to sell, at least not forever, because of the modern versions of two ancient common law precepts -- names the Rules against Perpetuities and against Constraints on Alienation. Grossly simplified, all testamentary trusts which tie the hands of your descendants eventually expire altogether, and trust provisions which prevent the sale of specific assets lose their effect even sooner.
posted by MattD at 5:40 PM on December 9, 2012 [6 favorites]

This immediately brought the Barnes Foundation problem to mind.
posted by R. Mutt at 5:43 PM on December 9, 2012 [1 favorite]

Restraints on alienation...
posted by MattD at 6:02 PM on December 9, 2012

Hmm, I get the feeling MattD knows his stuff on this.

I had planned to suggest establishing a trust, outside the direct control of your descendants, but which needs to grant reasonable access to your descendents in perpetuity.

That works well enough for more liquid assets (see: every "Ivy League" in the US), why not for family-held lands?
posted by pla at 6:10 PM on December 9, 2012

I don't know if I know enough details for this to be helpful, but I have a friend in Ontario whose family incorporated about 90 years ago to buy a group of islands in Georgian Bay. The islands are passed down through the various family lines, and all descendants are 'directors' of the company. In order to sell an island outside of the group, the entire family must approve. As each family line gets bigger, there has been no problem in finding a fellow-family member to take an island off one's hands on the rare occasion someone has wanted to get out of the arrangement.

I also know that compensation is involved when the islands jump between family lines, but I don't know if that is formalized within the structure or whether it's informally agreed upon.
posted by scrute at 6:13 PM on December 9, 2012

small_ruminant, let's say yes - it is a productive working farm and going concern, not a fancy palace or something like that. The money it makes can at least cover the property tax and other incidentals.
posted by Meatbomb at 6:26 PM on December 9, 2012

I work for a private university in their housing office. The university has dozens of houses on its property and sells those houses to faculty for their use. However, their are tons of restrictions on what can be done with those houses. Imagine the restrictions placed on historic homes and then multiply by at least 3. Anyway, while the faculty members own the homes, the university owns the land and simply leases it to them.

I'm not sure if any of this is relevant or interesting to you, but all this is my way of saying that in my experience, what you're asking about is certainly something that can be done.
posted by shesbookish at 6:26 PM on December 9, 2012

I used to live in -- and thus kind of own -- a house that was part of a land trust. It was owned by a non-profit corporation, and the corporation was made up of residents of the house (and one other nearby house, which the corporation also owned). As I recall, if the corporation had ever decided to sell the property the money would have to go to... hmmm... charity? There was no way for any one person, or even group of people, to make money off it.
posted by The corpse in the library at 6:30 PM on December 9, 2012

Hey MattD:

It sounds like you are mainly looking at this as an inheritance issue, right?

Can that not be avoided if I never own the land myself? If I first set up a trust, and donate my $$$ to this trust which buys the land? And then (I am hoping) all of the legal magic happens in the trust bylaws and regulations.

So, when I die there is nothing to inherit, I'm flat broke. There is just an empty seat on the board which goes to my son as per the bylaws. Am I barking up the wrong tree here?
posted by Meatbomb at 6:48 PM on December 9, 2012

IAAL, IANYL. I don't know Canadian law, but assuming that it has maintained its Anglo-American roots to any degree, I agree as a general matter with MattD's comments on the Rule agaist Perpetuties et cetera. The law does not like for property to be tied up forever. That being said, some American states have no RAP and allow for perpetual trusts. I am not sure about Canadian law, but bear in mind that the RAP is the rule, not the exception. It may be worth a consultation with a lawyer in your jurisdiction to learn these answers, unless this is just a theoretical curiosity.

Keep in my that no one can be the settlor (person who puts assets into a trust), the trustee (the person who runs the trust), and the beneficiary (the person who profits from the trust) at the same time. You can only be two at most. So, if you want to put property in trust for your benefit, you are going to need to find a third-party trustee.
posted by Tanizaki at 6:49 PM on December 9, 2012 [1 favorite]

You may well be able to get the effect you want over, say, the lifespan of your grandchildren or so, but in the really long term ("perpetuity") I think that the biggest problem is that the law is not sufficiently stable. As mentioned above, entail was once a way of doing what you want, but they changed the law removing the restrictions. The cleverer and more complicated your system the sooner the law is likely to invalidate it. Over the medium term, a few hundred years, nations and legal systems are not stable; over longer spans even civilizations are not stable. If you are serious, don't try to make it work forever because you can't, choose an attainable goal.
posted by Quinbus Flestrin at 7:11 PM on December 9, 2012 [2 favorites]

IANAL, but my understanding of the rules against perpetuities in various places is that although they do prevent actual perpetuities, you can make something that is effective for a generation or so. So you could set it up such that your direct offspring, and possibly their offspring, can't sell it, but eventually it would pass to someone who could sell it.
posted by hattifattener at 9:26 PM on December 9, 2012 [2 favorites]

Another practical issue just occurred to me: dilution of interest as the number of your descendants increases geometrically over time. Primogeniture may be frowned upon these days, but it was a solution to a practical problem.

A rough ballpark estimate of the number of your decendents of two children per descendent and 25 year generations gives you sixteen people after a hundred years and 4000+ after 300, not even considering lifespan which will mean that more than a single generation will be alive at any given time. A four thousandth undivided share in your land is not much of a benefit.

If you can find a way to create a very long running trust you will need to find a way to restrict it to only a small subset of your descendants. To buck convention, how about inheritance by youngest daughter?
posted by Quinbus Flestrin at 10:34 PM on December 9, 2012 [2 favorites]

This is the sort of thing that really needs a specialist lawyer, and, in my non-lawyerly opinion, the best person to recommend a specialist lawyer for this would be a good accountant: every solicitor you meet seems to think they know about trust rules, but they don't.

What you might be interested in are discretionary trusts, because in those cases the trustee can use his or her discretion when paying out the income of the trust. One of the main reasons people use them is precisely the reasons you outline: to stop the property falling to in the hands of an ex-spouse or a creditor.

It will be harder to stop the property ever being broken up, and in the final analysis it's impossible: the beneficiaries can typically get a court to change the terms of the trust, or the government can use eminent domain to take the property away. None the less, a trust is probably the best way of achieving what you want.
posted by Joe in Australia at 2:33 AM on December 10, 2012 [2 favorites]

OP -- what the Rule Against Perpetuities mostly is is a limit on the duration of the kind of trusts your talking about, written into the trust law of the jurisdiction in question. When the trust reaches its maximum duration, it either dissolves or becomes subject to the will of the beneficiaries (i.e. the descendants can tell the trustee of the trust what do with its assets, including to sell them).

A true charity can be perpetual but will eventually have the right to sell its particular assets, and won't have the legal obligation to provide any benefit of its obligations to its original benefactor's descendants -- which makes it sub par as a means of dynastic wealth preservation.
posted by MattD at 3:49 AM on December 10, 2012 [1 favorite]

In my area of the country, the extensive landholdings of an early pioneer are now owned and managed in the form of a limited partnership. There are a few general partners who actively manage them, and a little under 100 current members who simply receive a check every year. This could go on indefinitely. I don't know the details, but I would expect that the partnership agreement would allow for the holdings to be sold en masse only by a supermajority of the limited partners.
posted by megatherium at 4:25 AM on December 10, 2012 [1 favorite]

The only existing entity that I can think of that has a tightly defined charter that cannot be altered is the Ikea tax evasion charity. I don't think this helps, but it did spring to mind.
posted by Hactar at 1:36 PM on December 10, 2012