Rule against perpetuities

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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 far back as 1680, when landowners often tried to control the use and disposition of property beyond the grave, a concept often referred to as control by the “dead hand”.

The rule against perpetuities was intended to prevent people from immobilizing property, both real and personal, from generation to generation. In feudal England, the practice was to put land in trust in perpetuity, and succeeding generations lived off the land without owning it. The catalyst for this practice was the avoidance of certain taxes that applied to the transfer of land after the death of the owner. Perpetual trusts avoided the tax, but many people argue that the practice had the detrimental 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 transferor’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 be conferred, in any event, no later than 21 years after a useful life at the time the interest was created.

Although the rule appears to be straightforward, it has become one of the more complicated legal rules for this reason: the rule requires, with absolute certainty, that an interest in the property be awarded no later than 21 years after a lifetime at the time. of creation. of interest. If there is a possibility that the interest will not accrue during that period, 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, this is the time the transaction is completed.

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

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

2. John’s will states that Land A must be given to Joseph’s first son to marry. The gift is void under the rule against perpetuities because (a) it is possible for Joseph 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 establishes that after his death, his friend Maria has the right to live in her house for life, then the house is given to Maria’s eldest son. The measurement period is the life of Mary, plus 21 years. Since the gift to Mary’s eldest son will be given, in any case, immediately after Mary’s death, the gift does not violate the rule against perpetuities.

4. John’s living trust provides that after his death, his cabin in Vermont will go to the first member of his boy scout troop to achieve 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 his Boy Scout troop during the lifetimes at the time of John’s 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 in 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 their children.

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

To José for life, then to his wife for life, then to José’s children.
This is a reasonable gift after 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 live 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 could not be a life. As such, it could outlive Joseph for more than 21 years, and thus 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 Joseph was not married at the time of John’s death and that Joseph married later. Again, Jose’s wife would not be a life for the purposes of applying the rule, and it is possible that Jose could outlive Jose for more than 21 years, thus preventing Jose’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 provides for a contingent beneficiary should something happen 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 barrier 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 rule against perpetuities entirely, we are now seeing the emergence of estate planning vehicles specifically designed to perpetuate wealth from generation to generation. We will take a look at one of the most popular vehicles next time.

Next time: the “dynasty trust.”

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