The "rule against perpetuities" is often described as one of the most complicated legal rules ever!
It's origin stems from the days of feudal England - some say as early 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 tying up property - both real and personal - for generation after generation. In feudal England, the practice was to put land in trust in perpetuity, with succeeding generations living off the land without actually owning it. The catalyst for this practice was the avoidance of certain taxes which were being levied upon 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 insure that some person would actually own the land within a reasonable period of time after the death of the transferor. To accomplish 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, no later than 21 years after some life in being at the creation of the interest.
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 will vest no later than 21 years after some life in being at the creation of the interest. If there is any possibility that the interest will not vest during that period, then the gift fails ab initio, i.e. from the time 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 complete.
Let's consider a few examples illustrating the application of this rule:
1. John's will provides that Land A is to be given to the first child of Joseph to reach the age of 21. If Joseph is to have any children at all, they certainly will reach the age of 21 within 21 years after Joseph's death. Therefore, the gift does not violate the rule against perpetuities.
2. John's will provides that Land A is to be given to the first child of Joseph to marry. The gift is void 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 after Joseph's death.
3. John's living trust states that, upon his death, his friend Mary has the right to live in his house for her life, then the house is given to Mary's oldest child. The measuring period is Mary's life, plus 21 years. Since the gift to Mary's oldest child will vest, if at all, immediately upon Mary's death, the gift does not violate the rule against perpetuities.
4. John's living trust states that, upon his death, his cottage in Vermont will go to the first member of his boy scout troop to earn the eagle rank. The gift is void under the rule against perpetuities because it is possible that no one will earn the eagle rank from his boy scout troop during the lives in being at the time of John's death, plus 21 years. For one thing, the troop may cease to exist before anyone reaches that rank.
The complexity of the rule against perpetuities is further evidenced by the problem of the unborn widow. Suppose that John, from our examples above, wants to give his property to his son, Joseph, and Joseph's wife, and then to their children.
The 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 upon John's death, yet it violates the rule against perpetuities.
Let's 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 were to die or if Joseph and his wife divorced and if Joseph remarried to someone who was born after John's death, then Joseph's new wife could not be a life in being. 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 measuring period, thereby violating the rule against perpetuities.
Now suppose that Joseph was not married at the time of John's death and that Joseph got married afterward. Again, Joseph's wife would not be a life in being for purposes of applying the rule - and, it's possible that she could outlive Joseph by more than 21 years, thereby preventing Joseph's children from vesting in the property within the measuring period.
If you think that the rule against perpetuities is something that does not apply to you, think again. If you have a will or a trust that provides for a contingent beneficiary in the event something happens to the primary beneficiary, the rule against perpetuities comes into play. For this reason, if you have a will or a trust, it probably has a clause addressing this rule. Most are simply entitled, "Rule against Perpetuities."
In the last few years, many states have moved to either modify the rule or abolish it all together. Part of the reason, of course, is owing 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, which the rule against perpetuities has been steadfast against for over three hundred years.
With several states abolishing the rule against perpetuities altogether, we now see the rise of estate planning vehicles designed specifically to perpetuate wealth from generation to generation. We'll take a look at one of the more popular of those vehicles next time
About Michael Pancheri, Trust & Estate Attorney, Canton, Connecticut