Colorado Rule Against Perpetuities

Rule Against Perpetuities in Colorado

  In Colorado, the Rule Against Perpetuities allows a trust formed after 2001 to remain in existence for 1,000 from its creation.    See C.R.S. § 15-11-1101, et. seq.  This, in essence eliminates the impact of the Rule Against Perpetuities in newly created Colorado trusts.  Other states have taken a similar approach, extending their Rule Against Perpetuities to 100, 365, or 1,000 years.  Several states have abolished the Rule Against Perpetuities altogether - although this can create some interesting estate planning problems. 

Background on the Rule Against Perpetuities

  The Rule Against Perpetuities is one of the most arcane legal rules you will ever see.  It was first established under English common law to prevent trusts from being used to concentrate wealth (and prevent land from being sold) into perpetuity.  The rule made its way accross the Atlantic with the rest of English common law during the colonial period.  It has remained a part of american jurisprudence (on a state by state level) ever since. 

  In short, the Rule Against Perpetuities prevents a future interest in property (e.g. someone taking an interest in a trust or real estate) from vesting unless it occurs within a certain time period.  The time period can be very difficult to ascertain, but is usually defined as 21 years after the death of a life in being at the time of the trusts creation.  To oversimplify, this means that the trust can last for one lifetime, plus an additional twenty-one years. 

  Although the rule against perpetuities is a standard part of the curriculum in every law school in the country, very few lawyers understand its intricacies.  Courts in California even determined, at one point in time, that is was not malpractice for an attorney to lack understanding of the rule against perpetuities.  (See Lucas v. Hamm, 56 Cal. 2d 583, 15 Cal. Rptr. 821, 364 P.2d 685 (1961). The complexity of this rule often leads to surprise outcomes, where trusts are forced to terminate much sooner than intended.  Precisely because of the complexity of this rule, many states have statutorily repealed or simplified the rule.

Additional Information

  A recent movie, "The Descendants," starring George Clooney, tells the story of a wealthy landowner in Hawaii who owns 25,000 acres of prime real estate in a trust.  The trust is set to expire because of limitations imposed by the Rule Against Perpetuities.  While the sale of the land serves only as a backdrop to the story, it does raise some important legal issues regarding the purpose and justice of the Rule Against Perpetuities. 

 

Donor Advised Funds in Denver

     What is a Donor Advised Fund: A donor advised fund is a special type of charitable giving account that allows you to give money now, and thus qualify for a current income tax deduction, but distribute the money to the charities of your choice over a longer time period. In short, you give the money to a donor advised fund, which is run through a charitable foundation. The charitable foundation holds the money in a special account for you - and you get to attach a unique name to the account, for instance, the "Smith Family Foundation". From time to time, you can instruct the charitable foundation to distribute money to different charities of your choice.

     The benefits of a donor advised fund are:
          (1) It gives you a current income tax deduction for Amy amounts that you place in the account.

          (2) Any money gifted up the account is removed from your taxable estate.

          (3) You can distribute the money to your favorite charities on your own schedule - with some minor restrictions.

          (4) You can name your donor advised fund so that charities know who is receiving the money, or you can chose to give anonymously to avoid publicity.

          (5) Donor Advised funds are much easier to operate, and much cheaper than forming a private foundation or starting a more complex charitable organization.

     Here are a list of donor advised funds that operate in the Denver area:

Fidelity Charitable Services: www.fidelitycharitableservices.com

Community First Foundation:  http://www.communityfirstfoundation.org

Denver Foundation: www.denverfoundation.org

Vanguard Charitable Endowment: www.vanguardcharitable.org

Buying Life Insurance in Colorado

     There are many different varieties of life insurance, but for simplicity sake, they can be divided into two categories.  Term insurance and permanent insurance.  Both types of insurance have a useful place in a well designed estate plan, however it is important to understand the differences between the two.

     Term Life Insurance:  Term life insurance is basically life insurance that expires at a certain predetermined time period.  For instance, 10-year term insurance exires 10 years after it is first purchased.  One of the main features of term life insurance is that it does not have a cash value - whatever premiums you pay are kept by the insurance company.  For this reason, term insurance is generally much cheaper than a permanent type of life insurance. 

     Permanent Life Insurance:  Permanent life insurance comes in many different forms, including "whole life insurance," "universal life insurance," and "variable universal life insurance," just to name a few.  Permanent insurance products build up a cash value, that you can draw upon later through loans or withdrawals.  Often, the cash buildup inside the policy is invested, which can make a permanent life insurance poduct a valuable investment tool. 

     Buy Versus Rent:  Permanent insurance products are often compared to buying a policy, because you develop equity in the policy, whereas term insurance is often compared to renting, because you never develop any equity in a term policy. 

     Insurance Companies:  There are a number of insurance companies in the United States, each of which offeres slightly different types of insurance (e.g. policies with different features) at different rates.  Shopping around can help you get the best product for the best price.  Pay particular attention to the ratings associated with the particular companies, which can be deceiving.  Some companies may advertise an "A" rating, which may appear stellar unless compared to the A++ ratings received by other companies.

     Insurance Agents:  Insurance is generally sold by an insurance agent.  An agent may work for one specific insurance company (often called a captive agent), or an agent may be independent, giving them the ability to shop the market to find the best policy for the best price, regardless of the insurance company.   Beware of agents who have not been selling insurance for very long - the turnover rate among insurance agents is extraordinarily high, and the agent may not be around to help you with your policy in the future. 

     Coordination With Estate Plan:  It is imperitive that you coordinate the purchase of any life insurance with your estate plan.  Minor details about how the policy is owned or how the proceeds are paid after your death can have major consequences for your estate and for those you leave behind.  A good rule of thumb is never sign anything with an insurance agent until you have first talked to your estate planning attorney.