The “rule against perpetuities” is often described as one of the most complicated legal rules in history!
Its origin dates back to the days of feudal England, some say as early as 1680, when landowners often sought to control the use and disposition of property beyond the grave, a concept often referred to as estate 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 successive 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 after 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 the property would be valid unless it could be shown that the interest would vest, in any event, no later than 21 years after some life at the time of the interest’s creation.
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 the property will vest no later than 21 years after some lifetime at the time of creation. If there is any possibility that interest will not accrue during that period, then the gift 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 the transaction is completed.
Let us consider some examples illustrating the application of this rule:
1. John’s will states that Land A will be given to Joseph’s first child who turns 21. If José is going to have children, they will certainly reach the age of 21 within 21 years of José’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) Joseph may 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 is entitled to live in his house for life, then the house is given to Mary’s oldest son. The measurement period is the life of Maria, plus 21 years. Since the gift to Maria’s eldest son will, in any case, be made 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 no one may attain the rank of eagle from his boy scout troop during John’s lifetime at the time of death, plus 21 years. For one thing, the troop can cease to exist before someone reaches that rank.
The complexity of the rule against perpetuities is further evidenced by the unborn widow problem. Suppose John, from our previous examples, wants to give his property to his son, Joseph, and to Joseph’s wife, and then to his sons.
The provision in John’s trust or will would look like this:
To Joseph for life, then to his wife for life, then to Joseph’s children.
This is a reasonable gift on John’s death, but it violates the rule against perpetuities.
Suppose that José was married, but had no children, at the time of Juan’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 Joseph’s new wife José could not be a life. As such, she could outlive José by more than 21 years, so the transfer to José’s children after the death of José’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 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 is something that 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, it probably has 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 altogether. 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 stood firm for more than three hundred years.
With several states abolishing the contra perpetu rule entirely, 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 most popular of those vehicles next time.
Next time: the “dynasty trust.”
