What is the Rule Against Perpetuities?
The rule against perpetuities is a concept that functions to ensure that property rights attached to property in the present actually vest in the present and are not tied up forever until some situation takes place in the future.
The rule is used to invalidate future interests which are too remote. In other words, the developers of the rule against perpetuities did not want property tied up indefinitely because in certain situations, it would prevent such property from being freely transferred for a certain period of time by the people who actually have the legal title to the property .
This specific application of the rule against perpetuities is to real estate interests. There are certain non-real estate interests, such as future interests and contingent remainders, which can run afoul of the rule against perpetuities but since this web site deals primarily with real estate interests, I will defer the discussion of non-real estate interests to a future web page.
The Rule’s Historical Background
Historically, individuals have always sought to control how their estates are disposed of after their deaths, from attempts to bind future generations through elaborate trusts in ancient Greece, to the implementation of feudal law in England where the law severely limited alienation of land. The first written exposition of the rule was in 1638 when Lord Pembroke wrote, "It is against the course of nature that a man should make any other man his heir or great-grandson into the remotest place," and three years later, Edward Coke in his Institutiones Juris Angli used Lord Pembroke’s wording, but added a small improvement to it, arguing that "it is against the course of nature that Land should be aliened or charged with a Fee-simple in futuro, because the Tenure will thereupon be joynt-tenure." These early legal expositions of the rule did not have a significant influence on future developments of the rule and its actual application at common law appeared to begin with Duke of Norfolk’s Case in 1555. The rule was consolidated by Sir Edmund Saunders in 1676 in his book, Synopsis of the Year Books, who proposed "a devise for life viscaus, remainder to the Heirs of his body, and so forth in a long possibilitie" was void and that a limitation in the words, "Die without issue," or "Heirs of his body," or "Heirs of his body, lawfully begotten," were not sufficient to sustain such a long possibility. The rule began to evolve and take on a more modern form when it was explained by Lord Elizabeth, Chief Justice of the King’s Bench, in Derbeyshire v. Wheler, Barron of the exchequer in 1701 which held that [a]ny devise in possession . . . should cease when the four generations were completed . . . and held that where a devise was given to such persons as the testator "shall direct" [it] should be invalid if it [went] beyond the four generations." In the early nineteen hundreds, the rule began to come under abuse, where the courts tried to avoid the four generation restriction if it thought that the purpose of the devise or legislative intent was clear. Thus, in the case of Allen v. Shaw to the Supreme Court, Ontario in 1907, the validity of the statute creating the exceptions to the general rule contained in the Province of Ontario Act, 1851 was upheld to allow the creation of a perpetual trust to administer the estates at a minimum of thirty-five (35) years, thus creating an exception to the common law rule. In Re: Schofield’s Estate decided by the Court of Appeal, British Columbia in 1987, the court also treated the restriction "to the use, benefit and advantage of as many poor and deserving persons the widow shall think fit and proper or may have [it] to apply it for their sole benefit" as invalid as it sought to create "a gift to an indeterminate class", and thus it voided that legatee. However, the court secured the validity of the remaining gifts to other legatees which were identical in form.
Examples Distilling the Rule’s Application
The rule against perpetuities has a long history and, as such, is the subject of numerous state variations and adjustments. However, many of those adjustments and dominations can be traced back to some classic cases that are still relevant today.
For example, in the 1923 case of Central Bank & Trust Co. v. Calloway, the testator devised Blackacre to trustees, with the following provisions:
FIRST: For money invested by trustees, invest to receive the highest obtainable income.
SECOND: Maintain the property and buildings in public view.
THIRD: Pay the net income to the maker’s grandsons for their support, schooling and enjoyment until they reach the age of 21, at which time the property should pass to them, sharing equally.
In the case, two grandsons received payments on an irregular basis, which prompted the beneficiaries to seek the intervention of the probate court to compel the trustees to pay out the funds. However, the probate court opinion pointed out that the vagueness of the second condition: "To maintain the houses in public view" created an indefinite period of possibility of human life and thus violated the rule against perpetuities.
On the surface, that may not seem like much of a problem, but again, when dealing with the potentially massive life spans of the grandsons and the length of the trust, the unpredictability created practical liability to the trustees. In this case, it was resolved simply by the lower court, whose decision was later affirmed by the Texas Supreme Court.
In the respected 1949 case of Campbell v. Campbell, the will at the heart of the conflict contained the following provision:
SECOND: $1,000 to the husband, with the remainder:
Upon the death of my wife, Margaret Campbell [sic] . . . . In the event my wife dies prior to my daughter Margaret, then $1,000 to my daughter Margaret. The remainder of my estate at the time of my wife’s death to trust shown above for the benefit of my daughter Margaret and my grandson, Kenneth Drake, born Nov. 28, 1932, equally.
However, just in case Margaret lived longer than Kenneth, the will also contained alternate language that simply said that in that event, the share of the estate intended for Kenneth was to go to Margaret. So, was this a violation of the rule against perpetuities? The Texas Supreme Court thought so.
The court used the classic "Rule in Wild’s Case," to apply the traditional approach. In examining the purpose of the Trust, it determined that the beneficiary Kenneth had an advantage over Margaret, as Kenneth’s share of the Trust would be held until his death. Because of these conditions, the court decided that as long as the Trust could literally last forever, it still could not vest within the perpetuities period. Using this logic, the court voided the terms of the Will, applying Margaret’s share of the Trust directly to her estate.
These classic cases illustrate the practicality of the rule against perpetuities and offer insight into how the rule is applied and enforced in various jurisdictions.
Contemporary Reinterpretation and Reform
With the ongoing evolution of societies, the rule against perpetuities has not remained stagnant. Many modern legal systems have adapted or reformed the rule in response to criticisms and practicality concerns.
One significant development is the Uniform Statutory Rule Against Perpetuities (USRAP), enacted in various forms in several jurisdictions since the 1980s. The USRAP aims to simplify the application of a rule against perpetuities by providing a default vesting period of 90 years from the date of the interest’s creation, allowing future interests to vest up to that maximum period. As a result, if an interest vests at any point within the 90 years, it will be valid. Any interest not vested by the 90-year mark will be automatically void.
The USRAP also includes provisions for what are known as "waiting periods." For example, the majority USRAP versions contain a savings provision that reduces the length of the waiting period in which the rule applies to 90 years, if a shorter period is specified in the underlying document. While still notable, this majority version is less innovative than the minority version, which brings the 90-year vesting period down to 45 years.
In addition, the USRAP incorporates a substitute condition that the rule’s vesting will not apply to interests in real property that are not vested in the 90-year window, unless there is a specific provision in the document creating the interest that prohibits the interests from vesting within the 90-year period.
This involves some trade-offs. In eliminating the possibility of indefinite vesting past 90 years, the USRAP provides more certainty to those drafting wills, trusts, and deeds, thereby reducing litigation and costs. However, this may also limit the testator’s ability to use the property at issue, depending on how the property is used.
Other jurisdictions have adopted similar adaptations of the rule. For instance, Alberta repealed the rule in its entirety with the Wills and succession Act of 1997. British Columbia and Manitoba have adopted statutory solutions similar to the USRAP, but unlike certain provisions within the USRAP, these laws have not reduced the waiting period down to 45 years.
Due to the diverse approaches to the rule, there are two practical considerations: first, the law of the jurisdiction governing the law of the substance of the interest in question governs; and second, the absence of such a law will apply the common law of the jurisdiction in which the property resides. So, if the law of the substance has no law governing the substance of the interest, the common law of the jurisdiction in which the properties reside applies.
However, these reforms are not without tension. For instance, following the demise of the rule against perpetuities, English law was preserved for "charitable" property gifts. English law has also gone through its share of reformations, eventually replacing the rule against perpetuities with the Perpetuities and Accumulations Act of 1964, which replicated the effect of the USRAP.
Common Misunderstandings Analyzed
Several misconceptions arise when legal practitioners (and law students) attempt to untangle wills and trusts that appear to violate the rule against perpetuities. Below is a nonexhaustive list of common mistakes, in chronological order, that legal practitioners make with respect to the rule against perpetuities:
- A legal practitioner may confuse the rule against perpetuities with an estate planning tool called "perpetual trusts." Perpetual trusts are permissible in some states but not in New York. While the rule against perpetuities prohibits the creation of interests that exist more than a specified number of years beyond a life in being, perpetual trusts have no such limits. Therefore, a perpetual trust does not violate the rule against perpetuities.
- Perpetual trusts aside, a legal practitioner may mistakenly believe that a gift to a class has not "vested" when the last member of the class has not yet been born or when there are no members of the class living, rather than find the gift violates the rule against perpetuities. Generally in a class gift, the vesting is postponed until "the death of the last life in being to determine the class . . . .," Black’s Law Dictionary (11th ed. 2019) (defining "class gift"). As explained above, the rule against perpetuities, as codified in Section 9-1.1 of the Estates, Powers and Trusts Law, only postpones the vesting of a gift to a class until the death of the last living life in being.
- A legal practitioner may confuse the applicable perpetuities period with a period of time within which an interest must vest or be void. For example, a gift to the testator’s descendants may be subject to the rule against perpetuities and take effect immediately, which may violate the rule against perpetuities under the 21 years after death of all lives in being proviso. Putting aside the question of whether this particular gift would in fact violate the rule against perpetuities, any advisor should ask himself or herself: "When does the interest need to vest in order to avoid violating the rule?"
- A legal practitioner may mistakenly think that a vested interest cannot be invalidated under the rule against perpetuities . In a 2004 case involving a gift to grandchildren, for example, the Surrogate’s Court Modified the gift to Charity, which was entitled to the surplus, to avoid violating the rule against perpetuities.
- A legal practitioner may mistakenly believe that a gift to a class is valid under the rule against perpetuities simply because at least one member of the class is recognized in the will. However, this is not the correct test. For example, as discussed below, if the last child of a testator is a pretermitted child, then the testator’s will gift to his or her other children may violate the rule against perpetuities if the children’s gift is contingent upon the last child failing to file a notice of election to take a share of the estate.
- A legal practitioner may mistakenly believe that the law firm’s malpractice insurance will cover a claim against both the lawyer and his insurance carrier brought by a charitable remainder or charitable lead trust pursuant to Section 9-1.7 of Estates, Powers and Trusts Law. New York’s Probate Court rules only allow charitable trust beneficiaries to bring suits against the insured regardless of whether the insured is also a named defendant.
- A legal practitioner may mistakenly believe that a gift violates the 21 years after the date of the testator death rule simply because a gift requires beneficiaries to reach a specified age, e.g. XXX years old. For example, a gift to grandchildren who have not yet reached age XXX at the time of the testator’s death may be valid under the rule against perpetuities if the grandchildren reach age XXX within the perpetuities period (lives in being + 21 years).
- Legal practitioners may mistakenly believe that a gift requiring a corporate executor or trustee is void under the rule against perpetuities when the gift is in fact valid. In such cases, practitioners often find it easier to apply the rule against perpetuities without questioning whether the gift in fact violates the rule.
To preemptively avoid these mistakes, one must proceed with caution and be mindful of the complexities surrounding central rule against perpetuities issues.
Common Practice, Examples and Case Study
From a practical perspective, the Rule has been successfully applied in many contexts. For example, in Jordan v. Estate of Randall, 104 Or.App 160, 798 P.2d 706 (Or. App. 1990), the decedent was survived by a wife, ten children, grandchildren, great-grandchildren and a grand niece. He devised an annual percentage to each child based on the residue of his estate. If any child died without issue, his share was to go to the decedent’s grandchildren and if there were no grandchildren surviving the child, then his share was to go to the decedent’s great-granchildren.
The court held that the gift to the grandchildren was valid, based on Article IX, § 12(4) of Oregon’s version of the RAP, since all of the beneficiaries were alive at the time of the gift and no prior interest could possibly vest after a reasonable period (i.e., 21 years) from the date of the decedent’s death. On the other hand, the court found that the interest granted to the great-grandchildren violated the RAP because the interest could not vest until at least one of the grandchildren died and the possibility that all of the grandchildren might be dead without issue any time in that future was not a certainty.
In Wideman v. McNabb 101 Ohio St.3d 425, 805 N.E.2d 1098 (Oh. 2004), the supreme court of Ohio concluded that the Rule did not apply to a bequest of real estate to the settlor’s wife for life, with remainder to their children. The court determined that the RGH in this case retained the power to dissolve the trust and obtain a deed from his wife at any time. Therefore, the trust could terminate at any time, so no violation of the Rule occurred.
Other cases do not provide such easy answers. In Uncle Fud v. Bailey, 325 Ark. 168, 924 S.W.2d 802 (Ark. 1996), cert. denied, 519 U.S. 825 (1996), the Arkansas Supreme Court rejected a bequest to a hospital for the purpose of providing free medical services to the donor’s grandchildren. The Court stated that the Rule applied, but the period of unlimited duration was shortened when the grandchildren reach the age of 21 years. Not only would this result in a violation of the Rule, but the RAP also requires that the vesting periods be measured from the vesting event itself and not from some other event. In Wellesley College v. Attorney General, 321 Mass. 140, 72 N.E. 2d 909(Mass. 1947), the court invalidated trust instruments creating gifts in favor of charitable organizations because the period before vesting was the life of the donor plus 21 years.
Requisite Takeaways for the Property Planner
At the end of the day, what estate and property planners should take away from the rule against perpetuities is exactly that: planning. Given that a planning professional does not typically have a crystal ball, however, it may be difficult to identify all future contingencies that might subject a future interest to the rule against perpetuities. The best strategy for avoiding the rule is to be aware of the situations that have historically caused problems and to make sure that, so far as it is reasonable to do so, the circumvention of the rule is avoided. Sometimes the circumstances, such as a remote shift in market conditions cannot be anticipated but nevertheless could conceivably occur. In such a case, the prudent course would be to build in vesting contingencies or other measures to safeguard the future interest. However, in many other cases , the property planner will have a good basis on which to predict the future and can do a reasonably accurate job of avoiding the rule.
Many of the strategies to avoid the rule require the foresight to create a future interest in the first place. For example, the most straightforward way to avoid the rule would be to create a fee simple determinable. This is a future interest with a present conveyance of title; if the condition is ever broken, title reverts automatically to the grantor, his heirs, or his successors. On the other hand, an executory interest requires a purposeful operation of the law to trigger the future interest. Such an interest presents all the same danger below the rule against perpetuities, with the added danger of having the future interest lost by operation of the law due to a lapsed interest or as a result of a failed attempt to transfer the interest. Accordingly, drafters would be well advised to consider very carefully which of the two types of future interests they are creating.