The Rule Against Perpetuities

The Rule Against Perpetuities is an old doctrine from the English common law which limits the duration of a private (noncharitable) trust.  The most widely accepted statement of the Rule comes from Professor John Chipman Gray's classic 1886 treatise on the subject:

No interest is good unless it must vest, if at all, not later than twenty-one years after the death of some life in being at the creation of the interest.

If you're not quite sure what that means, don't feel bad.  It took Professor Gray 496 pages to explain the Rule and its application to lawyers who were already familiar with the subtleties of property law.  The complexities were such that the Supreme Court of California, in a 1961 case, ruled that it was not malpractice if a lawyer drafted a will that violated the Rule because the Rule Against Perpetuities was too difficult to master!

The Rule applies to contingent interests--that is, where the question of whether you get anything from the will or trust depends on some future event. An example would be a trust distribution where Alice receives the trust income for life, and when Alice dies, it goes to the children of Alice who are then living.  We don't know if any particular one of Alice's children will get anything from the trust until either Alice or that child dies.  Alice's children are therefore what we call "contingent beneficiaries."  (Alice is a "vested beneficiary.")

To really, really, really (over)simplify it, the Rule requires that the interests of all contingent beneficiaries be resolved--that is, we know for sure if they'll get anything or not--before the end of a "measuring life"--the life of some person who was living when the trust was created--plus 21 years.  In the example I gave in the previous paragraph, we have no problem.  Alice could be our "measuring life," and when Alice dies we will know which of her children outlived her, and therefore who gets the trust property, well within the Rule's time limit.  A trust with a more complex future distribution involving generations yet unborn could, however, very easily crash into the Rule.  In order to avoid violating the Rule, a trust couldn't attempt to reach too far into the future.

The original purpose of the Rule was to allow for the free transfer of property.  If a piece of land--which was the primary source of wealth back in the 1600s when the Rule got started--had too many contingent interests, it became impossible to transfer it because either you couldn't identify all the dozens of people who might have an interest in the land, or you couldn't find all of them, or you couldn't get them all to agree to sell the land, or you couldn't figure out how to split up the proceeds afterward, or some combination of all that.

In a modern trust with contingent interests, this is not an issue because the trustee, the sole owner of all the trust's assets, will have the power to sell those assets at any time.  Even though the problem the Rule was attempting to solve wasn't a problem any more, the Rule still applied to modern day trusts.  In recent years, however, most state legislatures have overridden the Rule with a statute that either replaces the "life in being plus 21" period with a fixed time limit, or allows a trust to ignore the Rule completely.  We'll talk about some planning arrangements that take advantage of that change in the next post.

If you'd like to learn more about the Rule Against Perpetuities and want to have some fun doing it, I recommend you read three delightful law review articles written by Professor W. Barton Leach (1900-1971): "Perpetuities in a Nutshell" (1938), "Perpetuities in the Atomic Age: The Sperm Bank and the Fertile Decedent" (1962), and "Perpetuities: the Nutshell Revisited" (1965).