Rule against perpetuities

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Historically, wealthy landowners liked to exercise control over how their estates would be managed after their deaths. In particular, they often wanted to ensure that land, to which they often had a long-standing and sentimental attachment, would remain within the family for the indefinite future. The method generally adopted to ensure this end was to tie up the land in a long Trust, granting limited beneficial interests to subsequent generations. So, a landowner might make a will granting his legal estate to trustees, to hold on trust for his eldest son for life, then his eldest son's eldest son for life, and so on. The law, understandably, took a dim view of this sort of thing, as it prevented land beingfreely alienable, and therefore allowed vast swathes of land to fall into ruin, as its owners would be unable able to sell or Mortgage to raise funds for its maintenance.

The 'rule against perpetuities' was one of the principles that developed over the years to limit the length of time for which the wishes of the dead settlor could govern the disposition of his estate. The rule can be quite complex in operation, and is poorly understood by many law students. To be fair to law students, it is poorly explained by most textbook authors. However, it is easy to understand if you appreciate the basic philosophy behind it, which is extremely simple. The position the law took, and mostly continues to take, is this:

A settlor can control the disposition of land to his adult children, and to his infant grandchildren, or their peers.

After that time, his descendants must be left to rely on their own judgement, without the interference of the dead hand of their ancestor. The rule is usually formally expressed something like this:

The grant of a contingent interest is void, unless it vests -- if it vests at all -- within the perpetuity period. The perpetuity period is any identifed 'life in being', plus 21 years, plus any relevant gestation period.

This sounds complicated, but it is nothing more than the law's way of saying that you can dispose of land to your children and your infant grandchildren, or their peers, but not beyond that. Let's examine why this follows from the statement of the rule.

The 'lives in being' are the people identified in the grant who are currently alive. If I made a disposition to my son Fred for life, then his eldest son (and Fred currently has no children), Fred was a relevant 'life in being'. He was an identified individual, alive at the time of the grant. The grant in remainder to Fred's eldest son was within the perpetuity period, because the property would vest in him as soon as Fred died. If the disposition was to my son Fred for life, then the first of his children to reach 21 then, again, we would be within the perpetuity period. However, had I stipulated the first of his children to reach 30, that clause would have been void. The disposition would not vest within the life-in-being-plus-21-year period. At the time the rule was formulated, a person under 21 years of age was legally incapable of owning land in his or her own right, so it was acceptable, in fact necessary, to keep ones land under the control of guardians until one's grandchildren were 21. These days, of course, land can be owned by anyone aged 18 or over, but the perpetuity rule still keeps to 21 years. So, with the proviso that an 'infant' is anyone under 21, you can see that the rule limits dispositions to children and infant grandchildren. The rule is not expressed in terms of children and grandchildren, of course, because a person could quite reasonably wish to leave property to his nieces and nephews, and their children. The rule allowed the settlor to control the disposition his nieces and nephews (as the relevant 'lives in being') and their children, provided they were under 21.

Where does the 'gestation period' fit in? Well, suppose the settlor had a son S, and S died just after his (S's) son G was conceived. Without the addition of the gestation period extension, a disposition to S for life, then to the first of his children to reach 21 would fail. It would fail because it might vest 21 years and 9 months after the relevant life in being (S). This was deemed to be to harsh on the settlor.

Apart from allowing a time extension for pregnancy, the rule was applied inflexibly. In particular, a disposition was invalid unless it was certain that it would vest, if it vested at all, within the perpetuity period, at the time of the grant. It was not enough that it be almost certain. For example, if the settlor had no grandchildren at the time of the grant, this disposition in his will would fail: to the first of my granchildren to obtain a university degree. It would fail even if by the time of his death the settlor had a grandchild who was a day away from graduation -- at the time of the grant, the disposition might have vested outside the period.

It is important to realize that the rule against perpetuities only affects contingent interests. Avested interest is one that has already fallen to an identified individual, and the law would not seek to take that interest away. A vested interest need not be in possession -- an interest in remainder, if held by an identified individual is vested, and outside the scope of the rule. In reality, interests that vest a long way in the future will tend to be contingent anyway, because we can't say with any certainty who they will vest in. In the case of the disposition to the first of my granchildren to obtain a university degreee, if one of my grandchildren had alread graduated at the time of my death, the disposition would not fail. It would succeed because the interest granted would be a vested interest, not a contingent interest, and would not be subject to the rule at all.

The rule against perpetuities was mostly influenced formed by consideration of the way in which family trusts were used, and problems arose where dispositions of property had to be made in non-domestic circumstances, for example between businesses. In such circumstances it was difficult to specify a relevant 'life in being'. Moreover, it was soon realized that the 'lives in being' need not have any connection to the beneficiaries, so long as they were identifiable. The practice arose of using 'royal lives clauses', dispositions that were to take effect say, 21 years after the death of the last of Queen Victoria's grandchildren. It has even been mooted that the lives need not be human lives -- 21 years after the death of last surviving giant turtle of Galapagos could be centuries in the future, but judges have expressed disapproval of this notion.

The complexity of the common law rule, and the inflexibility of its application, led to some striking anomalies (see, for example, the problem of the unborn widow, and the problem of the fertile ancient). This entire area of law was mildly shaken upLaw of property act (1925), then radically shaken up by the perpetuities and accumulations act (1964).

s.163(2) of the LPA1925 states that if a disposition of property would be void because the required age of the beneficiary puts the disposition outside the perpetuity period, the age can be reduced to 21. So a disposition to any of my grandchildren on reaching 25 years of age would be converted into a disposition on reaching 21 years of age, which saves the disposition from being voided by the rule.

The effects of the 1964 Act are more far-reaching, but they only apply to dispositions made after the Act came into force.

First, a settlor can now stipuate a fixed time period within which the interest will vest, up to 80 years. So now, I can say the business premises in East Dogpatch retail park to Acme Ltd for 80 years, then to Widgets, Inc.. This saves me having to search around for a grandchild of the current monarch to attach the trust period to, although this practice remains valid.

Second, a disposition is no longer invalid merely because it might conceivably vest outside the perpetuity period. A person who would otherwise be entitled to a disposition can claim it by showing that it did, in fact, vest within the period. This saves beneficiaries who might otherwise have found their legacies invalidated because of the remote possibility that one of their widowed grandparents might remarry a person 60 years their junior.

Third, the Act sets out what constitute 'lives in being', where no time period is specified. Essentially these are the lives of the settlor and the beneficiaries, and certain family members.

Fourth, where the 1925 Act would be invoked to reduce the qualifying age of a beneficiary to 21, to bring it within the perpetuity period, we now reduce the age by the minimum necessary to bring it within scope, not automatically to 21.

The final major change (there are other changes, but beyond the scope of this article) disposes of the 'fertile ancients' an 'precious infants' anomalies, by setting age ranges outside of which a person is considered infertile. For men, fertility begins at 14; for women, it begins at 12 and ends at 55.

In short, the law continues to limit the period for which property can be held in trust without coming into somebody's absolute ownership. The rule against perpetuities has been changed by statutory modification, but the philosophy behind it remains intact.

Land and Property Law
Trust Law