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.  John C. Gray, The Rule Against Perpetuities § 201 (Roland Gray ed., 4th ed. 1942).

 

§ 47  Introduction  [287-288]

 

Among law students, the Rule Against Perpetuities has a bad, and somewhat inaccurate, image.  Unquestionably, it is complex, both in its own right, and especially because it builds so much on other technical material.  With some work, however, the basics of the Rule are understandable.  The goals of this chapter are to provide tools you can use to identify and solve perpetuities problems, and to leave you with a healthy respect for the Rule’s intricacies.

 

§ 48  A Framework for Analysis  [289-293]

 

Three ideas permeate the analysis:

 

·        First, the Rule is concerned about questions that stay unresolved for too long.

·        Second, the Rule judges each interest based on facts we know at the time the interest becomes indestructible in a grantee.

·        Third, the Rule applies a possibilities test, so that if anything could go wrong, you must assume it will.

 

These ideas prompt a series of questions to ask about each interest you test.

 

First, is this interest contingent?  Here you must consider rules of construction.  In general, the Rule applies to all contingent remainders and executory interests, and it does not apply to vested interests.  (The Rule also applies to some commercial transactions, like options.)  There are some refinements to that principle, however.  A contingent gift to a second charity, following a gift to a first charity, is not subject to the Rule.  More importantly, vested remainders subject to open, despite their “vested” label, are subject to the Rule.

 

Possibilities of reverter and rights of entry are not subject to the Rule because they are retained interests.  See Brown v. Independent Baptist Church of Woburn, 91 N.E.2d 922 (Mass. 1950).

 

Second, what will it take to resolve the contingency?  The point here is to be precise.  Identify exactly what we will need to know in order to say the interest has vested.

 

Third, is there someone (or some group) you can identify and say, “Within your lifetime(s) or 21 years thereafter, this contingency will be resolved, one way or the other”?  Identifying this “validating life” poses the biggest initial problem formost students.  Take it in two steps.  First, narrow your search to “relevant lives,” those persons who have something to do with the contingency.  Once you have identified the people who might make a difference, try them out.  As to each person, ask “Can we be sure we will have resolved the problem by the time of your death (plus 21 years)?”  If so, that life can be a “validating life,” establishing that the interest satisfies the Rule.  If the answer is no, try another life.  When you run out of relevant lives, and none works, the interest is void under the Rule.

 

Imagine a typical estate plan, with a life estate, a remainder for life, and an ultimate remainder.  The life estate is presently vested, not subject to the rule.  The remainder for life is likely to be valid, because often the contingencies surrounding it will be resolved at the end of the first life estate.  If that is the case, the first life tenant will be someone alive when the interests were created and can serve as validating life.  The ultimate remainder, however, is more likely to be in trouble.  The problem will arise because the lives relevant to that interest often will be those who hold the intermediate remainder for life.  Those people may not qualify as validating lives because they might not have been alive at the beginning of the perpetuities period.  Like all generalizations, these must be used with care, because they will not always apply.  For a series of examples, see text pages 289-293.

 

§ 49  Craziness: If Anything Can Go Wrong  [293-297]

 

The Rule will snare a drafter making reasonable assumptions about the way life works, rather than considering remote possibilities.  Scholars have categorized these kinds of mistakes into three types.

 

A.  Fertile Octogenarians

 

The Rule assumes that anyone can have children.  See Jee v. Audley, 1 Cox 324, 29 Eng. Rep. 1186 (Ch., 1787) (people in their 70’s).  Now that adopted children increasingly qualify as class members, the presumption of fertility makes some sense.  It covers the possibility that an old person might still adopt. The presumption is dangerous for drafters, however, because it is so easy to forget in particular circumstances.  When clients describe elderly aunts, uncles, and grandparents, we must fight to remember that, theoretically, they could have or adopt more children, when we know in fact that they will not.

 

B.  Unborn Spouses

 

You cannot use as a validating life someone identified by description unless the description precludes the possibility that an afterborn might fit it.  Consider a testamentary grant in the following form: “To my son for life, then to his widow for her life, and at her death to his children then surviving.”  See Pound v. Shorter, 377 S.E.2d 854 (Ga. 1989).  The final gift to the grandchildren is void because the son might marry someone not alive when the testator died.  The “wife” could not serve as the validating life.  Although its most common application is to spouses, the principle applies to anyone identified by description, rather than by name. 

 

C.  Administrative Contingencies

 

This category involves references to events which people expect will be completed within the perpetuities period, but which might not be.  In re Campbell’s Estate, 82 P.2d 22 (Cal. App. 1938), involved a will giving the residue to the “four chair officers [of an Elks lodge] in office at the time of distribution of my estate.”  Because the estate might not be distributed within the lives of people alive at the testator’s death, the court invalidated the gift to the officers. 

 

§ 50  Class Gifts  [298-304]

 

Class gifts pose special problems under the Rule, because all of the individual interests hang together.  See Leake v. Robinson, 2 Mer. 363, 35 Eng. Rep. 979 (Ch. 1817).  In order for any class member’s gift to be valid, the uncertainties surrounding all class members must be resolved in time.  Moreover, one of the “uncertainties” which must be resolved is whether the class will remain open:  vested remainders subject to open are, despite their “vested” label, subject to the Rule.

 

A.  All or Nothing

 

First, ask whether the class will close in time. Ask whether there is some validating life (or set of lives) you can look to and be sure that within 21 years after that life (or set), there will be no more “feeders” for the class.  Ask also whether there is someone whose claim on the gift will be certain to close the class under the rule of convenience.  If neither search uncovers a validating life, the gift is void.  If you do find someone to close the class in time, be sure not to stop there, but to ask the second question.

 

Second, ask whether all conditions precedent for every class member will be resolved in time.  This inquiry may yield different validating lives than the ones used to close the class.  For a series of examples, see text pages 298-302.

 

When working on class gift problems, keep your eyes open for reasons a class might stay open, because feeders are still alive or you cannot count on the rule of convenience.  Secondly, notice carefully the terms of any conditions precedent attached to the gift.  Be especially wary of age conditions over 21.

 

B.  Subclasses

 

A partial exception to the all or nothing approach is the rule that gifts to different subclasses stand or fall separately.  For example, you could create subclasses by directing a trustee to “pay income to my children for each of their respective lives, and upon the death of each, distribute the share from which that child has been receiving income to his or her children then surviving.”  The gifts of principal following each child’s gift would each be treated separately.  Within a single class, a gift to one subclass may be valid while a gift to a different subclass will be void.  See American Security & Trust Co. v. Cramer, 175 F. Supp. 367 (D.C. 1959).

 

C.  Per Capita Gifts

 

Consider will language giving “$5,000 to each of my grandchildren, whether born before or after my death, who reach age 30.”  The “each” language means than rather than being grouped together, every grandchild is treated separately.  Those grandchildren alive at the testator’s death take valid gifts.  If the testator had not included the language “whether born before or after my death,” standard class closing rules would have closed the class at the testator’s death and left the then-living grandchildren as their own validating lives, without need for using the per capita perpetuities rule.

 

§ 51  Powers of Appointment  [304-309]

 

To solve powers of appointment problems ask a series of questions:

 

·        What kind of a power do we have?

·        Is the power itself valid?

·        Are each of the appointed interests valid?

 

A.  General Presently Exercisable Powers

 

The power itself is valid if it can be exercised within the period.  Apply standard perpetuities analysis, treating the question of when the power will become exercisable as you would any other contingency.  Usually the question will be whether the donee will be identified (or whether the power will fail for want of a donee) within the period.

 

Similarly, each appointed interest created by the power’s exercise is valid if contingencies surrounding it will be resolved within lives in being (+21) at the power’s exercise.  Exercising the power is just like creating other interests.

 

B.  General Testamentary and Special Powers

 

Because general testamentary and special powers do not allow a donee to take the property for herself, they begin limiting the donee’s freedom at the time the donor creates the power. Thus, the policies of the Rule require ending those limitations within lives in being plus 21 years of the power’s creation.

 

1.   Validity of the Power

 

A general testamentary or special power is void if it can be exercised beyond the period.  The lesson: unless you take special precautions, do not create a general testamentary or a special power for someone not yet alive.

 

2.   Validity of the Appointed Interests

 

The validity of interests created by the exercise of a general testamentary or a special power is measured from the time of the power’s creation.  Here the Rule is following the notion that the donee of a special power is the agent of the donor.  The donee merely fills in words in the donor’s document to identify who takes the property.

 

a.      A Second Look

 

Though we read the words as if the donor had written them, we do consider facts we know at the time the donee actually exercises the power.  This ability to consider facts at the time of exercise is called the “second look” doctrine.  Sometimes a second look saves the gift, sometimes not.  See Second National Bank of New Haven v. Harris Trust & Savings Bank, 283 A.2d 226 (Conn. Super. 1971); Marx v. Rice, 67 A.2d 918 (N.J. Ch. Div. 1949).

 

b.      Marshalling

 

A different way to save appointed interests is to apply the doctrine of marshalling of assets, sometimes called allocation.   It applies to those cases in which a donee has blended assets subject to the power and assets from elsewhere.  A court might save the exercise by allocating assets subject to the power to persons whose gift would not violate the Rule.  See Restatement (Second) of Property §§ 22.1, 22.2.

 

C.  Takers in Default

 

Conceptually, gifts in default are remainders subject to divestment by the exercise of the power.  There is no perpetuities problem unless the default gift is to an open class or subject to a condition precedent.  Many gifts in default, however, add these uncertainties. 

 

Case law is slim and the commentators disagree about whether the second look doctrine applies to gifts in default.  See Sears v. Coolidge, 108 N.E.2d 563 (Mass. 1952).

 

The usual rule to take perpetuities problems one step at a time applies with particular vengeance when powers are involved.  When identifying the type of power, watch for sleepers.  On questions of whether the power or the appointed interests are valid, recall all of the traditional traps.  When judging the validity of interests created under a general testamentary or a special power, be sure to measure the time period from the power’s creation.

 

§ 52 Savings Clauses  [309-311]

 

Because the Rule is so technical and so easily violated, drafters have developed fail-safe devices called “savings clauses.”  These clauses have two functions.  First, they protect the plan from the possibility that the Rule will strike some gifts, sending property back through the grantor’s estate.  Second, properly drafted savings clauses can extend a trust so that a grantor can make gifts which the Rule would prohibit. 

 

The availability of these clauses is not, however, a good excuse for ignoring the Rule.  Savings clauses build upon, rather than replace, the Rule.  Further, a poorly drafted savings clause can squander the opportunity to preserve most or all of a grantor’s plan.  See In re Lee’s Estate, 299 P.2d 1066 (Wash. 1956).

 

§ 53  Reform  [311-317]

 

         A.  Wait and See

 

The basic idea is to wait after a testator’s death to see if the horrible things the Rule imagines actually take place. The basic problem is: How long should we wait?  Three major approaches have emerged for determining how long to wait:

 

·        identify people who are causally connected to the resolution of the contingency, and then wait to see whether the problem is resolved within their lives plus 21 years.

·        The Restatement recommends a related approach, but creates a series of categories for identifying the lives.  Restatement (Second) of Property § 1.4.

·        Wait 90 years.

 

The third technique, adopted through the Uniform Statutory Rule Against Perpetuities (USRAP), is the most popular.  Originally a free-standing act, USRAP is now also part of the UPC.  See UPC §§ 2-901 to 2-906.

 

B.     Reformation  [a/k/a “cy pres”]

 

Another method for easing the Rule’s harshness is for courts to reform offending documents to bring them into compliance with the Rule.  Courts either might reform the document immediately upon discovering the  perpetuities violation, or they might first wait and see how things turn out, and then reform if they must.  In either case, the basic problem is: How do we reform?

 

The goal of reformation is to follow the donor’s intention as nearly as possible while still meeting Rule’s limits.  Some courts could have benefited by taking more nuanced approaches to pursuing that goal.  See Estate of Chun Quan Yee Hop, 469 P.2d 183 (Haw. 1970); Berry v. Union Nat’l Bank, 262 S.E.2d 766 (W. Va. 1980).

 

         C.  Abolition

 

Spurred by wealthy individuals who would like to create perpetual trusts (and by the banks who would administer those trusts), a substantial block of states have effectively repealed the Rule as it applies to trusts in which the trustee has the power to transfer trust property.  The principal motivation of these donors is to take advantage of the exemptions created by the generation-skipping transfer tax (GST).  See Ira Mark Bloom, The GST Tax Tail is Killing the Rule Against Perpetuities, 87 Tax Notes 569 (2000). 

 

States allowing perpetual dynasty trusts may be creating serious problems that will haunt society in the future.  Such trusts can concentrate enormous wealth—and the power wealth brings—in the hands of a relative few.  Similarly, the influence of financial institutions that manage those trusts will grow. Administrative nightmares could arise as over time a trust for "my descendants" includes thousands of beneficiaries.  Sources of venture capital could become scare as trustees—traditionally bound by more conservative investment rules— hold a greater percentage of the nation’s wealth.  Whether other legal doctrines will arise or expand in order to meet whatever problems arise, only time will tell.