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SEC releases filings on Kennedy clause
Ellen Simon | May 11, 2005 17:40 IST
Thanks to a quirk of old English law, the Kennedy family is mentioned in thousands of documents setting the terms for billions of dollars in commercial trusts.
More than 6,000 documents for deals involving everything from the resale of student loans to car payments to mortgages have a clause about the Kennedy family, according to a search of Securities and Exchange Commission filings.
The clause almost always reads, "In no event shall the trust continue beyond the expiration of 21 years from the death of the last survivor of the descendants of Joseph P Kennedy Sr., the late Ambassador to the Court of St. James."
How did the Kennedys become boilerplate?
The answer goes back to early English law, when trusts were family affairs, with a patriarch providing for his heirs by creating a financial structure for making payments over time. One rule governing such trusts was called the Rule Against Perpetuities, which spelled out that the trust couldn't last longer than 21 years after the death of a descendant of living person or group of people.
The first recorded case invoking the rule was in 1682 and involved the Duke of Norfolk, said Donald Gjerdingen, a professor at Indiana University School of Law. The rule, created at a time when land equaled power and wealth, was meant to limit how much control the person who set up the trust could exert once he was dead, Gjerdingen said.
"It's something most people learn in law school and never think about again," said Ronald S. Borod, head of the structured finance practice at the Boston law firm Brown Rudnick Berlack Israels.
When commercial trusts became popular in the 1970s, they were drafted to comply with the early English law, according to Al Sawyers, a structured finance partner at the New York office of law firm Orrick, Herrington & Sutcliffe. Lawyers drafting commercial trusts would use the names of five or so real people in the trust documents, said Mark Levie, another structured finance partner at Orrick.
Commercial trusts hold assets, such as a stream of mortgage payments, which are then resold to investors. Investment firms issuing the trust make money on the difference between the financial payments that come their way and the lower payments made to investors.
Levie worked on a structured finance deal around 1977 for the Bank of America. "The Bank would pick young children of people who were working on the deals, as a nice gesture to them," he wrote in an e-mail. His now 26-year-old daughter was mentioned in a number of deals when she was an infant.
"I think my next daughter made it into one or two deals before someone got the idea of referencing the Kennedy family and turning the clause into a standard one, which was much more efficient but took away a small element of humor in a generally un-humorous process," Levie wrote.
The Kennedys became the standard in the early 1980s, Levie said. The reason: There's lots of them and it's easy to keep track of them. Other families that have been used in trust documents over the years include the descendants of Queen Victoria, the Rockefellers and, in Chicago, the descendants of former Mayor Richard J. Daley.
The Kennedy reference is almost always uniform, although sometimes lawyers add a flourish.
A filing for a John Hancock trust reads that it will terminate "21 years from the date of death of the last surviving child, grandchild, great-grandchild and great-great grandchild . . . of Rose Fitzgerald Kennedy and the Honorable Joseph Patrick Kennedy, late Ambassador to the Court of St. James."
The clause isn't unique to commercial trusts, Sawyers said.
"An old, really old, guy would put it in a trust for your kids," he said. And the phrase isn't in every commercial trusts because some state laws spell out that the clause is unnecessary.
Sawyers said the rule is a relic. "I can't imagine anybody's trust being declared invalid because they violated this rule against perpetuities," he said.
And just what is the Court of St. James?
St. James's Palace was a residence of kings and queens of England until the accession of Queen Victoria in 1837. Ambassadors to Britain are officially ambassadors to the Court of St. James.
Joseph Patrick Kennedy, the father of President John F. Kennedy, served as ambassador there from 1937 to 1940.
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