Rule against perpetuities

The “rule against perpetuities” is often described as one of the most complicated legal rules in history!

Its origins date back to the days of feudal England, some say as far back as 1680, when landlords often sought to control the use and disposition of property beyond the grave, a concept often referred to as property control. “dead hand”

The rule against perpetuities was intended to prevent people from tying up property, both real and personal, generation after generation. In feudal England, the practice was to put land in trust in perpetuity, with succeeding generations living off the land without owning it. The catalyst for this practice was the evasion of certain taxes levied on the transfer of land upon the death of the owner. Perpetual trusts avoided the tax, but many people argue that the practice had the deleterious effect of concentrating large amounts of wealth among a few members of society.

The rule against perpetuities, then, was designed to ensure that someone actually owned the land within a reasonable period of time after the grantor’s death. To achieve that result, the rule stated that no interest in property would be valid unless it could be shown that the interest would vest, in any event, no later than 21 years after any lifetime at the time the interest was created.

Although the rule appears to be straightforward, it has become one of the most complicated legal rules for this reason: the rule requires, with absolute certainty, that an interest in property shall vest no later than 21 years after any lifetime at the time. of creation. of interest If there is any possibility that interest will not accrue during that period, then the donation fails ab initio, that is, from the moment the document creating the interest takes effect. For wills, it is the time of the testator’s death. For trusts, it is the time when the transaction is completed.

Let us consider some examples that illustrate the application of this rule:

1. John’s will states that Land A will be given to Joseph’s first son who turns 21. If Jose is to have children, they will certainly reach the age of 21 within 21 years of Jose’s death. Therefore, the gift does not violate the rule against perpetuities.

2. John’s will states that Land A will be given to Joseph’s first son to marry. The gift is void under the rule against perpetuities because (a) it is possible for José to have children during his lifetime and (b) if he does, there is no certainty that any of them will marry within 21 years of death. Jose’s.

3. John’s living trust states that upon his death, his friend Mary has the right to live in his home for life, then the home is given to Mary’s eldest son. The measurement period is Maria’s life, plus 21 years. Since the gift to Maria’s eldest son will, in any event, be given immediately after Maria’s death, the gift does not violate the rule against perpetuities.

4. John’s living trust states that upon his death, his Vermont farmhouse will go to the first member of his boy scout troop to earn the rank of eagle. The gift is void under the rule against perpetuities because it is possible for no one to earn the rank of eagle from their boy scout troop during their lifetime at the time of John’s death, plus 21 years. For one, the troop can cease to exist before someone reaches that rank.

The complexity of the rule against perpetuities is further evidenced by the problem of the unborn widow. Suppose John, from our previous examples, wants to give his property to his son, Joseph, and to Joseph’s wife, and then to his children.

The provision in John’s trust or will would look like this:

To José for life, then to his wife for life, then to José’s children.

This is a reasonable gift on John’s death, but it violates the rule against perpetuities.

Suppose that Joseph was married, but had no children, at the time of John’s death. This would mean that Joseph and his wife are Lives in Being. If Joseph’s wife died or if Joseph and his wife divorced and if Joseph remarried someone who was born after John’s death, then the new wife of Jose could not be a life. As such, she could outlive Joseph by more than 21 years, so the transfer to Joseph’s children after the death of Joseph’s wife would be outside the measurement period, thus violating the rule against perpetuities.

Now suppose that José was not married at the time of Juan’s death and that José married later. Again, Joseph’s wife would not be a life for the purposes of applying the rule, and it is possible that she could outlive Joseph by more than 21 years, thus preventing Joseph’s children from acquiring the property within the measurement period. .

If you think the rule against perpetuities doesn’t apply to you, think again. If you have a will or trust that establishes a contingent beneficiary in case something happens to the primary beneficiary, the rule against perpetuities comes into play. For this reason, if you have a will or trust, you probably have a clause that addresses this rule. Most are simply titled “Rule Against Perpetuities.”

In recent years, many states have moved to modify the rule or abolish it entirely. Part of the reason, of course, is due to the complexity of the rule itself. But there is also a growing trend in the country to remove any barriers to the accumulation and perpetuation of wealth, against which the rule against perpetuities has held firm for more than three hundred years.

With several states abolishing the contra perpetu rule altogether, we are now seeing the rise of estate planning vehicles specifically designed to perpetuate wealth from generation to generation. We’ll take a look at one of the more popular of those vehicles next time.

Next time: the “dynasty trust.”