How To Explain Periods To A 3 Year Old Boy Rule Against Perpetuities

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Rule Against Perpetuities

The “Rule Against Perpetuity” is often described as one of the most complicated legal rules ever!

Its origins date back to the days of feudal England – some say as early as 1680 – when landowners often attempted to control the use and disposition of property beyond the grave – a concept often referred to as “dead hand” control.

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

The rule against perpetuities is therefore designed to ensure that a person will actually own the land for a reasonable period of time after the transferor’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, if at all, not later than 21 years after some life in the creation of the interest.

Although the rule appears to be simple, it has become one of the most complicated legal rules for this reason: the rule requires, with absolute certainty, that an interest in ownership will be vested no later than 21 years after some life in the creation of the interest. If there is any possibility that the interest will not be acquired during that period, then the gift lapses ab initio, i.e. from the moment the document creating the interest is created. For wills, it is the time of the testator’s death. For trusts, it is the time when the transaction is completed.

Let’s consider a few examples that illustrate the application of this rule:

1. John’s will stipulates that land A is given to Joseph’s first child who turns 21 years old. If Joseph has any children at all, they will certainly reach the age of 21 within 21 years of Joseph’s death. So the gift does not violate the rule against perpetuity.

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

3. John’s living trust states that, after his death, his friend Mary has the right to live in his house for the rest of her life, and then the house goes to Mary’s oldest child. The measuring period is Mary’s life, plus 21 years. Since Mary’s eldest child will receive the gift, if at all, immediately upon Mary’s death, the gift does not violate the rule against perpetuity.

4. John’s living trust states that, upon his death, his Vermont cottage will go to the first member of his Boy Scout troop to attain the rank of Eagle. The gift is invalid under the anti-perpetuity rule because it is possible that no one will earn an eagle rank from their Boy Scout troop during their lifetime at the time of John’s death, plus 21 years. For one thing, a troop can cease to exist before anyone reaches that rank.

The complexity of the rule against perpetuity is further evidenced by the problem of the unborn widow. Let’s assume that John, from our examples above, wants to give his property to his son, Joseph, and Joseph’s wife, and then to their children.

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

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

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

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

Now suppose that Joseph was unmarried at the time of John’s death and that Joseph married afterwards. Again, Joseph’s wife would not be for life for purposes of the rule – and, it is possible, she could outlive Joseph by more than 21 years, thereby preventing Joseph’s children from passing on the property during the measurement period.

If you think the rule against perpetuity is something that doesn’t apply to you, think again. If you have a will or trust that provides for a potential beneficiary in the event that 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 of them are simply titled “Government Against Eternity”.

In the past few years, many states have moved to either modify the rule or repeal it all together. Part of the reason, of course, lies in the complexity of the rule itself. But there is also a growing trend in the country to remove all barriers to the accumulation and perpetuation of wealth, against which the rule against perpetuities has been persistently fighting for more than three hundred years.

With several states abolishing the anti-perpetuity rule altogether, we are now seeing the rise of estate planning vehicles designed specifically to preserve wealth from generation to generation. Next time we will look at one of the most popular vehicles.

Next time: “dynasty trust”.

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