Rule against perpetuities

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The common law rule against perpetuities forbids some future interests (traditionally contingent remainders and executory interests) that may not vest within the time permitted; the rule "limit[s] the testator's power to earmark gifts for remote descendants".[1] In essence, the rule prevents a person from putting qualifications and criteria in his/her will that will continue to control or affect the distribution of assets long after he or she has died, a concept often referred to as control by the "dead hand" or "mortmain".

The scenario forbidden by the rule against perpetuities.
The rule against perpetuities forbids future interests that could potentially vest after the established time period.

The rule is often stated as follows: “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.”[2] For the purposes of the rule, a life is "in being" at conception. Although most discussions and analysis relating to the rule revolve around wills and trusts, the rule applies to any future dispositions of property, including options. When a part of a grant or will violates the rule, only that portion of the grant or devise is removed. All other parts that do not violate the rule are still valid. The perpetuities period under the common law rule is not a fixed term of years. By its terms, the rule limits the period to at the latest 21 years after the death of the last identifiable individual living at the time the interest was created ("life in being"). This "measuring" or "validating" life need not have been a purchaser or taker in the conveyance or devise. The measuring life could be the grantor, a life tenant, a tenant for a term of years, or in the case of a contingent remainder or executory devise to a class of unascertained individuals, the person capable of producing members of that class.

The rule against perpetuities at common law has been amended by various statutes. In England, the Statute of Uses (1536) and the Statute of Wills (1540) and the consequent rise of flexible future interests made the rule a significant judicial tool in defeating the intent of landowners to impose limitations on remote future owners in grants and devises. Major alterations to the common law rule in the United Kingdom came into effect under the Perpetuities and Accumulations Act 1964, including the application of the traditional 21-year limitation period to options.[3]

The rule is notoriously difficult to properly apply, as pointed out by a 1961 decision of the Supreme Court of California which held that it was not legal malpractice for an attorney to draft a will that inadvertently violated the rule against perpetuities.[4] Therefore, in the United States it has been abolished by statute in Alaska, Idaho, New Jersey, Pennsylvania,[5] Kentucky,[6] and South Dakota.[7] The Uniform Statutory Rule Against Perpetuities validates non-vested interests that would otherwise be void as violating the common law rule if that interest actually vests within 90 years of its creation;[8] it has been enacted in 29 states (Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Florida, Georgia, Hawaii, Indiana, Kansas, Massachusetts, Minnesota, Montana, Nebraska, Nevada, New Jersey, New Mexico, North Carolina, North Dakota, Oregon, South Carolina, South Dakota, Tennessee, Utah, Virginia, Washington, West Virginia), the District of Columbia, and the U.S. Virgin Islands, and is currently under consideration in New York.[9] Other jurisdictions apply the "wait and see" or "cy-près doctrine" that validates contingent remainders and executory interests that would be void under the traditional rule in certain circumstances.[7] These doctrines have also been codified in the United Kingdom by the 1964 statute.[3]

Historical background[edit]

The rule has its origin in the Duke of Norfolk's Case of 1682.[10] That case concerned Henry, 22nd Earl of Arundel, who had tried to create a shifting executory limitation so that one of his titles would pass to his eldest son (who was mentally deficient) and then to his second son, and another title would pass to his second son, but then to his fourth son. The estate plan also included provisions for shifting the titles many generations later if certain conditions should occur.

When his second son, Henry, succeeded to one title, he did not want to pass the other to his younger brother, Charles. Charles sued to enforce his interest, and the court (in this instance, the House of Lords) held that such a shifting condition could not exist indefinitely. The judges believed that tying up property too long beyond the lives of people living at the time was wrong, although the exact period was not determined until another case, Cadell v. Palmer, 150 years later.[11]

The rule against perpetuities is closely related to another doctrine in the common law of property, the rule against unreasonable restraints on alienation. Both stem from an underlying principle or reference in the common law disapproving of restraints on property rights.[12] However, while a violation of the rule against perpetuities is also a violation of the rule against unreasonable restraints on alienation, the reciprocal is not true.[13] As one has stated, "The rule against perpetuities is an ancient, but still vital, rule of property law intended to enhance marketability of property interests by limiting remoteness of vesting."[14] For this reason, another court has declared that the provisions of the rule are predicated upon "public policy" and thus "constitute non-waivable, legal prohibitions.[15]

Common law[edit]

Black's Law Dictionary defines the rule against perpetuities as "[t]he common-law rule prohibiting a grant of an estate unless the interest must vest, if at all, no later than 21 years (plus a period of gestation to cover a posthumous birth) after the death of some person alive when the interest was created."[16]

At common law, the length of time was fixed at 21 years after the death of an identifiable person alive at the time the interest was created. This is often expressed as "lives in being plus twenty-one years." Under the common-law rule, one does not look to whether an interest actually will vest more than 21 years after the lives in being. Instead, if there exists any possibility at the time of the grant, however unlikely or remote, that an interest will vest outside of the perpetuities period, the interest is void and is stricken from the grant.

The rule does not apply to interests in the grantor himself. For example, the grant "For A so long as alcohol is not sold on the premises, then to B" would violate the rule as to B. However, the conveyance to B would be stricken, leaving "To A so long as alcohol is not sold on the premises." This would create a fee simple determinable in A, with a possibility of reverter in the grantor (or the grantor's heirs). The grant to B would be void as it is possible alcohol would be sold on the premises more than 21 years after the deaths of A, B, and the grantor. However, as the rule does not apply to grantors, the possibility of reverter in the grantor (or his heirs) would be valid.

Statutory modification[edit]

Many jurisdictions have statutes that either cancel out the rule entirely or clarify it as to the period of time and persons affected.

  • In the United Kingdom, dispositions of property subject to the rule before 14 July 1964 remain subject to the rule.[3] The Perpetuities and Accumulations Act 1964 provides for the effect of the rule of interests created thereafter. This act codifies the "wait and see" doctrine developed by courts.
  • In the Republic of Ireland,[17] the rule was abolished as of 1 December 2009.[18]
  • The states of the United States have differing approaches.
    • Some states follow the "wait-and-see approach," or "second look doctrine," and/or apply the "cy pres doctrine." Under the wait and see approach, the validity of a suspect future interest is determined on the basis of facts as they now exist at the end of the measuring life, and not at the time the interest was created.[19] Under the cy pres doctrine, if the interest does violate the rule against perpetuities, the court may reform the grant in a way that does not violate the rule and reduce any offensive age contingency to 21 years.[20]
    • Other states have adopted the Uniform Statutory Rule Against Perpetuities (or some variant of it) which extends the waiting period typically to 90 years after creation of the interest.[21]
    • At least six states have repealed the rule in its entirety, and many have extended the vesting period of the wait-and-see approach for an extremely long period of time (in Florida, for example, up to 360 years for trusts).[22]
  • In Australia, each of the states have followed the UK approach to perpetuities, with statutory modification. In NSW for example, The Perpetuities Act 1984 limits perpetuities for 80 years,[23] but also adopts the United States "wait and see" methodology.[23]

Illustrations[edit]

Several famous illustrations reflect some of the bizarre outcomes possible under the rule against perpetuities including the "fertile octogenarian," the "unborn widow," and the "precocious toddler."

A common example of the rule in application would be as follows. T writes a will. T already has great-grandchildren, has met them, and likes them. T also has an estate home called Blackacre. It is T's desire to leave Blackacre for her family to enjoy, and to ensure that her great-grandchildren, whom she knows, will get to enjoy Blackacre as well without the great-grandchildren's elders, such as T's children and grandchildren, selling Blackacre. After her great-grandchildren, T really has no interest in who enjoys Blackacre, as she does not know them.

T goes to her lawyer and explains her desire. T's lawyer drafts a will with the following clause:

Blackacre to my children for their lives, then to their children for their lives, then to their children their heirs and assigns.

What the lawyer has created is a life estate in Blackacre to T's children, a successive life estate in Blackacre to T's grandchildren, followed by a Fee Simple future interest in T's great-grandchildren. However, the Rule Against Perpetuities would void the interest to T's great-grandchildren, and leave the will creating the successive life estates with a reversionary interest in T's estate.

An illustration of the rule against perpetuities.
The rule against perpetuities voids the interest to T's great-grandchildren.

Why? The rules states that any interest must vest, if at all, within 21 years of a life in being at the time of the instrument. The instrument here is a will, so the time of the instrument is T's death, not when the will was drafted. Next, we need to find every possible person, whether named in the instrument or not, who could, regardless how remote the possibility, affect the instrument. T's children, grandchildren etc. are our possible measuring lives because they control who will take Blackacre. For a measuring life to be valid, it must be a life in being at the time of the interest. For a class, such as children or grandchildren, to be valid measuring lives, it must be a closed class, meaning it must be impossible, not merely highly unlikely, for another class member to come into existence after the time of the instrument.

In the above example, T's children are a valid measuring life. T's children are a class, so the class must be closed at the time of the instrument for T’s children to be valid measuring lives. Here, the class that consists of T's children would be closed at the time of the instrument as it is impossible for T to have any children after T dies and after the applicable period of gestation. The class that consists of T's grandchildren is NOT a valid measuring life as T's children are free to reproduce after T dies, meaning the class is not closed at the time of the instrument. Obviously, the same goes for T's great-grandchildren for the same reason.

Now that we know our valid measuring lives, we can see which interests in Blackacre are valid. Obviously, the life estate to T's children is valid as they are the measuring lives. The life estate to T's grandchildren is also valid. Why? Because all of T's grandchildren must be born within 21 years of a measuring life. T's children are our measuring lives, all of T's grandchildren must be born before the last of T's children dies (or, at least be in the womb, which counts as being alive for rule against perpetuities purposes), meaning their interest would vest within 21 years of a measuring life. T's great-grandchildren's interest is invalidated by the rule. Why? Because T's grandchildren are free to reproduce after all of T's children have died. It is possible that one of T's grandchildren could have a child more than 21 years after T's last child dies, meaning the interest might not vest within 21 years of a life in being and thus the gift is to that extent void under the rule.

Applications[edit]

In 1919, Wellington R. Burt died, leaving a will that specified that apart from small allowances, his estate was not to be distributed until 21 years after the death of the last of his grandchildren to be born in his lifetime. This condition was met in 2010, 21 years after his granddaughter Marion Landsill died in November 1989. After the heirs reached an agreement, the estate, which had reached an estimated value of $100 million to $110 million, was finally distributed in May, 2011, 92 years after his death.[24]

Charity-to-charity exception[edit]

The Rule never applies to conditions placed on a conveyance to a charity that, if violated, would convey the property to another charity. For example, a conveyance "to the Red Cross, so long as it operates an office on the property, but if it does not, then to the World Wildlife Fund" would be valid under the Rule, because both parties are charities. Even though the interest of the Fund might not vest for hundreds of years, the conveyance would nonetheless be held valid. The exception, however, does not apply if the conveyance, upon violation of the condition, is not from one charity to another charity. Thus, a devise "to John Smith, so long as no one operates a liquor store on the premises, but if someone does operate a liquor store on the premises, then to the Roman Catholic Church" would violate the rule. The exception would not apply to the transfer from John Smith to the Roman Catholic Church because John Smith is not a charity. However, if the original conveyance was "to John Smith and his heirs for as long as John Smith does not use the premises to sell liquor, but if he does, then to the Red Cross" the rule would not be violated, because it would necessarily vest or expire within the life of John Smith (since the restriction was on him alone).

Saving clause[edit]

To avoid problems caused by incorrectly drafted legal instruments, practitioners in some jurisdictions include a "saving clause" almost universally as a form of disclaimer. This standard clause is commonly called the "Kennedy clause" or the "Rockefeller clause" because the determinable "lives in being" are designated as the descendants of Joseph P. Kennedy (the father of John F. Kennedy), or John D. Rockefeller. Both designate well-known families with many descendants, and are consequently suitable for named, identifiable lives in being.

In order to satisfy the rule against perpetuities, the class of people must be limited and determinable. Thus, one cannot say in a deed "until the last of the people in the world now living dies, plus 21 years." For a time, it was popular to use a Royal lives clause, and make the term of a deed run until the last of the descendants of (for example) Queen Victoria now living dies plus 21 years. This was grudgingly upheld by the courts.[citation needed]

Related rules[edit]

Jurisdictions may limit usufruct periods. For example, if a corporation builds a ski slope, and gives rights of use (usufruct) as gifts to corporate partners, these cannot last in perpetuity, but must terminate after a period that must be specified, e.g. 10 years. A perpetual usufruct is thus forbidden and "perpetual" might mean a long, but finite period, such as 99 years. Here usufruct is distinct from a share, which may be held in perpetuity.

See also[edit]

Notes[edit]

  1. ^ Posner, Richard A. (1977). "section 18.7". Economic Analysis of the Law (2nd ed.). Boston, Massachusetts: Little, Brown. p. 394. 
  2. ^ Gray, John Chipman; Gray, Roland (1942). "Section 201". The Rule Against Perpetuities (4th ed.). OCLC 1738415. 
  3. ^ a b c "The Rules Against Perpetuities and Excessive Accumulations (LC251)". Sixth Program of Law Reform: The Law of Trusts. Law Commission. 1998-03-31. 
  4. ^ Lucas v. Hamm, 56 Cal. 2d 583, 15 Cal. Rptr. 821, 364 P.2d 685 (1961).
  5. ^ For interests created on, or after, January 1, 2007. (20 Pa. Cons. Stat. § 6104)
  6. ^ KRS 381.224
  7. ^ a b Moynihan, Cornelius J.; Kurtz, Sheldon F. (2002). Introduction to the Law of Real Property (3rd ed.). Saint Paul, Minnesota: West Group. p. 248. ISBN 978-0-314-26031-4. OCLC 49800778. 
  8. ^ Uniform Law Commissioners, Uniform Statutory Rule Against Perpetuities
  9. ^ Uniform Law Commissioners, Legislative Fact Sheet - Statutory Rule Against Perpetuities
  10. ^ 3 Ch. Cas. 1, 22 Eng. Rep. 931 (Ch. 1682)
  11. ^ 1 Cl. & Fin. 372, 6 Eng. Rep. 936 (H.L. 1832, 1833)
  12. ^ Cole v. Peters, 3 S.W.3d 846 (Mo. Ct. App. W.D. 1999).
  13. ^ Cole, 3 S.W.3d 846.
  14. ^ Wedel v. American Elec. Power Service Corp., 681 N.E.2d 1122 (Ind.App. 1997). See also Matter of Estate of Kreuzer, 243 A.D.2d 207, 674 N.Y.S.2d 505 (N.Y.A.D. 3d Dept. 1998) (the law favors the vesting of estates as early as possibility).
  15. ^ Symphony Space, Inc. v. Pergola Properties, Inc., 88 N.Y.2d 466, 669 N.E.2d 799 (N.Y. 1996).
  16. ^ Black's Law Dictionary, Deluxe 8th Ed.
  17. ^ Land and Conveyancing Law Reform Act, No. 27 of 2009, section 16
  18. ^ "Land and Conveyancing Law Reform Act 2009". Dublin: A&L Goodbody. 2009-07-22. Retrieved 2009-12-14. 
  19. ^ http://legal-dictionary.thefreedictionary.com/Wait-And-See+Doctrine
  20. ^ http://legal-dictionary.thefreedictionary.com/cy+pres+doctrine
  21. ^ Statutory Rule Against Perpetuities Summary
  22. ^ Fla. Stat. § 689.225(2)(f) (2008)
  23. ^ a b The Perpetuities Act 1984 (NSW) s7.
  24. ^ "Millionaire's heirs get inheritance after 92 yrs: Lumber baron Wellington R. Burt finally parts with his fortune, 21 years after his last grandkid died". CBS News (Saginaw, Michigan). Associated Press. May 8, 2011. Retrieved May 13, 2011. 

External links[edit]