Rule against perpetuities
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The rule against perpetuities at common law invalidates certain future interests (traditionally contingent remainders and executory interests) that may vest beyond the time of perpetuities. In essence, the rule "limit[s] the testator's power to earmark gifts for remote descendants".[1]
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. 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 prevents the property owner from distributing and controlling his assets for too long a period of time after his death—a concept often referred to as control by the "dead hand" or "mortmain". 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.
Although most discussions and analysis relating to rule revolve around wills and trusts, the rule applies to any future dispositions of property, including options.
The rule against perpetuities at common law has been amended by statutes. In England, the Statute of Uses (1536) and the Statute of Wills (1541) and the consequent rise of flexible future interests made the rule a significant judicial tool in defeating the intent of landowners in grants and devises. Major alterations to the common law rule in the United Kingdom came into effect under the Perpetuities and Accumulations Act of 1964, including the application of traditional 21-year limitation on options.[2]
The rule is studied in Australian trust and property law.[3]
In the United States it has been abolished by statute in Alaska, Idaho, New Jersey, and South Dakota.[4] Twenty-eight other U.S. states have adopted the Uniform Statutory Rule Against Perpetuities,[5] which validates non-vested interests that would otherwise be void under the common law rule if that interest actually vests within 90 years of its creation.[6] Other jurisdictions apply the "wait and see" or "cy-près" doctrines that validate contingent remainders and executory interests void under the traditional rule in certain circumstances.[7] These doctrines have also been codified in the United Kingdom by the 1964 statute.[2]
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[edit] Common law rule
No interest is good unless it must vest, if at all, not later than twenty-one years after some life in being at the creation of the interest.[8] For the purposes of the rule, a life is "in being" at conception.
[edit] Historical background
The rule has its origin in the Duke of Norfolk's Case of 1682.[9] That case concerned Henry, Earl of Arundel (later the Duke of Norfolk), 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.[10]
[edit] Common law
The Deluxe Eighth Edition of 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."
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 his 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.
[edit] Statutory modification
Many jurisdictions have statutes that either cancel out the rule entirely or put clearer limits on the period of time and who is affected by it.
In the United Kingdom, dispositions of property subject to the rule before 14 July 1964 remain subject to the rule.[11] The Perpetuities and Accumulations Act of 1964 provides for the effect of the rule of interests created thereafter. This act codifies the "wait and see" doctrine developed by courts.
Some jurisdictions in the United States follow the "wait-and-see" approach, whereby if the interest does not vest or fail within 21 years, the court will either reform the grant so it does or strike the clause that violates the rule. 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.[5]
Many states are repealing the rule in its entirety or extending 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)[12] in order to take advantage of a loophole in the 1986 Tax Act which has led to the formation of dynasty trusts. The 1986 Act allows the inheritance transfer tax to be avoided if a trust is set up that is valued over a floor minimum (US$2.5 million in 2005) for each transfer which would be allowed by the Rule Against Perpetuities. The result is that states with no Rule Against Perpetuities, or an irrelevant one, will attract more large trusts as there would never be a transfer tax on the trust. The increase of trust revenue benefits the state's economy.
[edit] Illustrations
Several famous illustrations of the bizarre outcomes possible under the rule against perpetuities include 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 Blackacre. It is T's desire to leave Blackacre for her family to enjoy, and wants to ensure that her great-grandchildren, whom she knows, get to enjoy Blackacre as well without her great-grandchildren's older ancestors, 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.
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, grandchildren, to be valid measuring lives, it must be a closed class, meaning it would be impossible 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 is 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. So any interest which must vest within 21 years after T's children dies is valid. The class that is 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 RAP 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 died, meaning the interest must not vest within 21 years of a life in being.
[edit] Charity-to-charity exception
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 Roman Catholic Church" would be void under the Rule, except that both parties are charities. Even though the interest of the Church 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.
[edit] Saving clause
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 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.
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 until the last of the descendants of (for example) Queen Victoria who now lives in being dies, plus 21 years. This was grudgingly upheld by the courts.[citation needed]
[edit] References
- ^ Richard Posner Economic Analysis of the Law 2nd ed. (1977), sec. 18.7 at page 394.
- ^ a b LC251.PDF
- ^ Federation Press - Book: Trusts Law in Australia
- ^ Kurtz, S. ed. Moynihan's Introduction to the Law of Real Property, 3rd Edition (2002) p248
- ^ a b Uniform Law Commissioners, USRAP Legislative Fact Sheet
- ^ Uniform Law Commissioners, Uniform Statutory Rule Against Perpetuities
- ^ Ibid.
- ^ J. Gray, Rule Against Perpetuities S 201 (4th Ed. 1942)
- ^ 3 Ch. Cas. 1, 22 Eng. Rep. 931 (Ch. 1682)
- ^ , 1 Cl. & Fin. 372, 6 Eng. Rep. 936 (H.L. 1832, 1833)
- ^ Law Commission Report, THE RULES AGAINST PERPETUITIES AND EXCESSIVE ACCUMULATIONS
- ^ Fla. Stat. § 689.225(2)(f) (2008)
[edit] See also
- Cestui que
- Cy-près doctrine
- Executory contract
- Executory interest
- Statutes of Mortmain
- Thellusson Will Case
