RULE AGAINST PERPETUITIES-ITS PART OF YOUR TRUST AND WILL. WHAT IS IT?
Introduction:
In law school, one of the most complex and seemingly arcane legal constructs is the Rule Against Perpetuities which, despite its long-standing existence, still is enforced in most states in the United States. In the past, failure to draft a document so it did not violate the Rule meant that the document was instantly void and that would hold even if all the parties to the document wanted it to remain in effect and simply did not take into account that Rule due to ignorance.
The results were at times catastrophic, with the parties basing their own planning and actions on a document that was void from the moment it was executed.
Put simply, the Rule as it pertained to trust documents provided that no trust document would be valid unless the interest must vest within twenty-one years after the death of the last beneficiary alive at the time the trust was written.
Seem simple? It is not. And note that the key is that if there is anyway the document would not vest within that time, then the trust was immediately void.
Modern interpretations and statutory work has altered this long rule and that is the subject of this article.
The Basic Law:
The common law Rule against Perpetuities is English in origin and was first promulgated centuries ago. The modern version of the Rule has been altered in California by statute. California has enacted the Uniform Statutory Rule Against Perpetuities, which supersedes the old common law rule.
Under the Uniform Rule in the California Probate Code, an interest in a trust will be invalid if either of two alternative conditions are not met. Prob C §§21200-21231.
Under the first alternative, the interest must be certain to either vest – (move from being merely an expected interest to a currently enforceable legal right) -- or terminate no later than 21 years after the death of a potential beneficiary who was alive when the trust was created. Under the second alternative, the interest must actually vest or terminate within 90 years after the trust was created.
If either alternative is not achieved, the trust is void immediately.
The purpose of the rule against perpetuities was and is to prevent property interests from being tied up for generations after a trustor's death. Thus, a provision in a trust that grants a property interest to a person who will be born several generations in the future will usually be invalid under the rule. One cannot use the trust to assure the inheritance of a relative two hundred years in the future. That is the thrust of the Rule and it is still the law.
Whether an interest granted by a trust violates the Rule against Perpetuities can be difficult to determine. But note it is still quite possible to create a trust that will last a remarkably long period of time. A trust established in 1951 by the will of newspaper publisher William Randolph Hearst is expected to last until at least 2040. See Hearst v Ganzi (2006) 145 CA4th 1195, 52 CR3d 473. How?
Solutions:
The way most attorneys avoid the danger of void documents is to include the following provision, or one like it, in most California Wills or Trusts.
Section XXX Maximum Term for Trusts
Notwithstanding any contrary provisions or unless terminated earlier under other provisions of this trust, each trust created under this trust document will terminate 21 years after the death of the last to die of the descendants of my paternal and maternal grandparents who are living at the time of my death.
At that time, the remaining trust property will vest in and be distributed to the persons entitled to receive mandatory distributions of the trust’s net income, in the same proportions. If no beneficiary is entitled to mandatory distributions of net income, the remaining trust property will vest in and be distributed to the beneficiaries entitled to receive discretionary distributions of the trust’s net income, in equal shares.
The above clause or ones like it create a methodology such that under all circumstances the trust must vest within the time limit of the Rule.
Conclusion:
The original purpose of the ancient Rule was to stop the dead from controlling disposition of property to the living for unlimited amounts of time. While decades and, indeed, almost a century can pass while the decedent’s wishes are controlling, the law provides that such efforts must eventually lapse.
That the Rule has lasted over half a millennium in one form or another would seem to indicate its value to the living.
You can make directions on your property long after you are dead…but not forever. That’s the Rule.