Rule against perpetuities


The rule against perpetuities is a legal rule in common law that prevents people from using legal instruments to exert control over the ownership of private property for a time long beyond the lives of people living at the time the instrument was written. Specifically, the rule forbids a person from creating future interests in property that might feasibly vest beyond 21 years after the lifetimes of those living at the time of creation of the interest, often expressed as a "life in being plus twenty-one years". In essence, the rule prevents a person from putting qualifications and criteria in a deed or a will that would continue to affect the ownership of property long after he or she has died, a concept often referred to as control by the "dead hand" or "mortmain". The practical effect of this is that control can be exercised over no more than two future generations - a will can create restrictions over the future disposal of real property by the testators son and heir, but not over the further disposal of that property by that son's own heirs. Feasibly, such a third-generation disposal might fall further into the future than a life in being plus twenty-one years - and so terms in a will written to constrain that disposal would be void from the outset.
The basic elements of the rule against perpetuities originated in England in the 17th century and were "crystallized" into a single rule in the 19th century. The rule's classic formulation was given in 1886 by the American legal scholar John Chipman Gray:
The rule against perpetuities serves a number of purposes. First, English courts have long recognized that allowing owners to attach long-lasting contingencies to their property harms the ability of future generations to freely buy and sell the property, since few people would be willing to buy property that had unresolved issues regarding its ownership hanging over it. Second, judges often had concerns about the dead being able to impose excessive limitations on the ownership and use of property by those still living. For this reason, the rule allows testators to put contingencies on ownership only provided that no interest created vest later than 21 years after the death of some specified person alive at the creation of the interest. Lastly, the rule against perpetuities was sometimes used to prevent very large, possibly aristocratic, estates from being kept in one family for more than one or two generations at a time.
The rule also applies to options to acquire property. Often, one of the objectives of delaying the time of vesting is to avoid or reduce taxation of some sort. For example, a bequest in a will may be to one's grandchildren, often with a life interest to one's surviving spouse and then to the children, to avoid the payment of multiple death duties or inheritance taxes on the testator's estate. The rule against perpetuities was one of the devices developed to at least limit this tax avoidance strategy.

Historical background

The rule has its origin in the Duke of Norfolk's Case of 1682. That case concerned Henry, 22nd Earl of Arundel, who had tried to create a shifting executory limitation so that some of his property would pass to his eldest son and then to his second son, and other property would pass to his second son, but then to his fourth son. The estate plan also included provisions for shifting property many generations later if certain conditions should occur.
When his second son, Henry, succeeded to his elder brother's property, he did not want to pass the other property to his younger brother, Charles. Charles sued to enforce his interest, and the court 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.
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. 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. 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." 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."

Common law

Black's Law Dictionary defines the rule against perpetuities as "he common-law rule prohibiting a grant of an estate unless the interest must vest, if at all, no later than 21 years 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 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. 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. 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 would be valid.

Statutory modification

Many jurisdictions have statutes that either cancel out the rule entirely or clarify it as to the period of time and persons affected:
  • In England and Wales, dispositions of property subject to the rule before 14 July 1964 remain subject to the rule. The Perpetuities and Accumulations Act 1964 provides for the effect of the rule of interests created thereafter. The Perpetuities and Accumulations Act 2009 codified the "wait and see" doctrine developed by courts and made the perpetuity period 125 years.
  • In Scotland there are similar provisions under the Trusts Act 1921.
  • In the Republic of Ireland, the rule was abolished as of 1 December 2009.
  • The states of the United States have differing approaches.
  • * Some states follow the "wait-and-see approach", or "second look doctrine" or apply the "italic=no 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. Under the cy-près 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.
  • * 29 states or territories have adopted the Uniform Statutory Rule Against Perpetuities, which extends the waiting period typically to 90 years after creation of the interest.
  • * 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 Australia, each of the states has followed the English approach to perpetuities, with statutory modification. In New South Wales, for example, the Perpetuities Act 1984 limits perpetuities to 80 years, but also adopts the "wait and see" approach. However, South Australia has abolished the rule.

    Application in the United States

The rule against perpetuities is one of the most difficult topics encountered by law school students. It is notoriously difficult to apply properly: in 1961, the Supreme Court of California ruled that it was not legal malpractice for an attorney to draft a will that inadvertently violated the rule. In the United States, the common law rule has been abolished by statute in Alaska, Idaho, New Jersey, Kentucky, Rhode Island, and South Dakota. Pennsylvania has adopted a statutory provision that reads on first glance as though it abolishes the rule, but in fact converts the law to the wait-and-see approach.
A new US Uniform Statutory Rule Against Perpetuities was published in 1986 that adopts the wait-and-see approach with a flat waiting period of 90 years in place of the rule of life in being plus 21 years., 31 jurisdictions have adopted the new rule: 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, and West Virginia, and the District of Columbia and the U.S. Virgin Islands. In 2015, the New York State Legislature considered whether or not to adopt the new rule.
Other jurisdictions apply the cy-près doctrine, which validates contingent remainders and executory interests. Under certain circumstances, the traditional rule would have considered these remainders and interests to be void.

Applications

In 1919, Michigan lumber baron 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 $100–110 million, was finally distributed in May 2011, 92 years after his death.
Real estate developer Henry G. Freeman established the Henry G. Freeman Jr. Pin Money Fund, which was intended to provide an annuity of $12,000 per year to the First Lady of the United States. Freeman died in 1917, but no presidential spouse received any payments from the fund until after Freeman's then-living descendants died out in 1989. Although Freeman's will stated that the payments were intended "to continue in force as long as this glorious government lasts", the trustees of the fund determined that maintaining the trust for more than 21 years after 1989 would violate the rule against perpetuities, and terminated the trust by agreement with then-First Lady Michelle Obama in 2010 to give the fund to charity instead. Hence, only four First Ladies ever received payments from the fund.
In 2023, the Walt Disney Company and the Reedy Creek Improvement District signed a development agreement that enacted restrictive covenants to limit the district's governing power over Disney properties in Florida, which include Walt Disney World, just prior to a state takeover of the district's board. The agreement referenced the rule against perpetuities, stating that if a perpetual term is deemed invalid, then the agreement "shall continue until twenty-one years after the death of the last survivor of the descendants of King Charles III, king of England, living as of the date of this agreement."