George Clooney is outstanding as the father of a family torn apart by tragedy. His character deals with unsettling secrets of his dying wife, and his broken relationships with his two troubled daughters. Forced to deal with the consequences of neglecting his family, Clooney does a great job capturing conflicting and powerful emotions.
In the movie, Matt and his family own a piece of Hawaii that had been in the family since the 1860s. In real life, there is actually a Hawaiian island called Niihau that has been run by the same family since they bought it in 1863.
What is the best way to hold valuable property in a trust for future generations? Here’s a better way:
Set up a trust in a state that has liberalized or eliminated (e.g. South Dakota) the “rule against perpetuities”. This is a legal concept that prevents you from tying up assets for longer than some specified period.
The trust should be a dynastic trust that continues, like in the movie, for future generations, but perhaps for a longer time period then the movie. You don’t want that five-year deadline hanging over someone’s head. This is especially so if the property has unique sentimental value, so that you want it to continue in the family.
If the trust will own real estate, as in the movie, form a limited liability company (LLC) to own the property. Then you transfer the LLC interests to the trust, not the property directly. That is important for several reasons. If the property was in, say, New York, but you established your trust in another state, say Alaska, the planning won’t work as New York law will still apply because of the real estate. But if you put the real estate in an entity, like an LLC, and transfer entity interests to the trust you have transformed, through modern day legal alchemy, real property into personal property (the LLC membership interests) and Alaska law will apply. You also want to have an entity own the property to protect other trust assets in the event of a suit.
Name an institutional co-trustee. The objectivity a professional trust company can bring to dealing with the real life issues brought up in the movie can be tremendous.
Gift other assets to the trust. If the trust will hold personal or undeveloped real estate, gift enough other assets to provide the cash flow to cover property taxes, insurance and other carrying costs.
If the property is personal use property, like a vacation home, include some details in the trust as to who can use it and when, when or if it can be sold, how expenses can be handled if the trust runs low on funds, and so forth.
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