What Special Present Does A 21-Years-Old Receive In Great Britain Rule Against Perpetuities

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Rule Against Perpetuities

The “rule against perpetuities” is often described as one of the most complicated legal rules ever!

Its origin dates back to the days of feudal England – some say as early as 1680 – when landowners often tried to control the use and disposition of property beyond the grave – a concept often referred to as control of the “dead hand”.

The rule against perpetuities was intended to prevent people from tying up property – both real and personal – for generation after generation. In feudal England, the practice was to place land in trust in perpetuity, with successive generations living off the land without actually owning it. The catalyst for this practice was the avoidance of certain taxes that were levied on the transfer of land upon the death of the owner. Eternal trusts avoided the tax, but many people argue that the practice had the harmful effect of concentrating large amounts of wealth among a few members of society.

The rule against perpetuities, then, was designed to ensure that some person would actually own the land within a reasonable period of time after the transferor’s death. To accomplish that result, the rule stated that no interest in property would be valid if it could not be shown that the interest would possess, if at all, not later than 21 years after any life in being at the creation of the interest.

Although the rule seems to be simple, it has become one of the most complicated legal rules because of this: the rule requires, with absolute certainty, that an interest in property will be received no later than 21 years after some life to be at the creation. of the interest. If there is any possibility that the interest will not be transferred during that period, then the gift fails ab initio, ie from the time the document creating the interest takes effect. For wills, it is the time of the Testator’s death. For trusts, it is the time when the transaction is complete.

Let us consider some examples illustrating the application of this rule:

1. John’s will provides that Land A must be given to Joseph’s first child who reaches the age of 21. If Joseph has any children at all, they must reach the age of 21 within 21 years of Joseph’s death. Therefore, the gift does not violate the rule against perpetuities.

2. John’s will provides that Land A should be given to Joseph’s first child if he were to marry. The gift is void under the rule against perpetuities because (a) it is possible that Joseph will have children during his lifetime and (b) if he does, there is no certainty that any of them will marry within 21 years of Joseph’s death.

3. John’s living trust states that, after his death, his friend Mary has the right to live in his house for her life, then the house is given to Mary’s oldest child. The measuring period is Mary’s life, plus 21 years. Because the gift to Mary’s oldest child will be, if at all, immediately after Mary’s death, the gift does not violate the rule against perpetuities.

4. John’s living trust states that, upon his death, his cottage in Vermont will go to the first member of his Boy Scout troop to earn the rank of Eagle. The gift is void under the rule against perpetuities because it is possible that no one will earn the eagle rank of their scout troop during the lives in being at the time of John’s death, plus 21 years. First, the troop may cease to exist before anyone reaches that rank.

The complexity of the rule against perpetuities is further demonstrated by the problem of the unborn widow. Suppose that John, according to our examples above, wants to give his property to his son, Joseph, and Joseph’s wife, and then to their children.

The provision in John’s trust or will would look like this:

To Joseph for life, then to his wife for life, then to Joseph’s children.

This is a reasonable gift after John’s death, however it violates the rule against perpetuities.

Let us assume that Joseph was married, but had no children, at the time of John’s death. This would mean that Joseph and his wife are Lives in Being. If Joseph’s wife died or if Joseph and his wife divorced and if Joseph remarried someone who was born after John’s death, then Joseph’s new wife could not be life. As such, she could outlive Joseph by more than 21 years and thus the transfer to Joseph’s children after the death of Joseph’s wife would be outside the measurement period, thus violating the rule against perpetuities.

Now suppose that Joseph was not married at the time of John’s death and that Joseph married later. Again, Joseph’s wife would not have a lifetime to apply the rule – and, it is possible that she could outlive Joseph by more than 21 years, thus preventing Joseph’s children from investing in the property within the measurement period.

If you think the rule against perpetuities is something that doesn’t apply to you, think again. If you have a will or trust that provides for a contingent beneficiary in the event that something happens to the primary beneficiary, the rule against perpetuities comes into play. Therefore, if you have a will or trust, it probably has a clause about this rule. The majority is simply entitled, “Rule against eternities”.

In recent years, many states have moved to either modify the rule or abolish it all together. Part of the reason, of course, is due to the complexity of the rule itself. But, there is also a growing tendency in the country to remove any barriers to the accumulation and perpetuation of wealth, against which the rule against perpetuities has been firm against more than three hundred years.

With several states abolishing the rule against perpetuities altogether, we are now seeing the rise of estate planning vehicles designed specifically to perpetuate wealth from generation to generation. Next time we will look at one of the most popular of those vehicles.

Next time: the “dynasty trust”.

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