Understanding the Rule Against Perpetuities: Why It’s Important for Plan-Makers

The rule against perpetuities is a legal doctrine that limits the time period for transferring property from an owner to another party or into a trust’s ownership. Its purpose is to prevent a grantor or trustor from binding a party to endless future interests in the property. Put simply, according to the rule against perpetuities, no property can be owned in perpetuity.

What Is the Duration for the Rule Against Perpetuities?

The rule against perpetuities normally lasts 21 years or less depending upon the state law. Some states allow it to extend up to 90 years. Statutes generally state that a ‘life in being’ plus 21 years is the accepted time. A ‘life in being’ is a living person whose identity can be established.

Examples of the Rule Against Perpetuities in Action

Let’s say you are an estate planner and your client wishes to leave property to a grandchild. Under the rule against perpetuities, you cannot create a trust where the grandchild does not receive the gift until after your client’s fourth generation grandchild is born. This would run afoul of the rule. You would need to find a way to structure the trust such that the child’s grandchildren receive their gifts within the 21-year time frame.

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Why Is the Rule Against Perpetuities Necessary?

The rule is important for two reasons. First, it ensures that the grantor or trustor does not attempt to tie up property indefinitely and that all gifts will eventually be distributed to the intended parties. And second, it prevents the accumulation of wealth within an extended family. Without the rule against perpetuities, wealthy individuals could pass down wealth to their heirs indefinitely and many have tried. The rule against perpetuities stops that kind of accumulation of wealth.

Related Legal Concepts

Understanding the rule against perpetuities often intersects with other estate planning principles, particularly the fertile-octogenarian rule which addresses assumptions about fertility in perpetuities analysis. Estate planners must also consider taking against the will provisions when beneficiaries might reject testamentary gifts, and the prudent person rule when trustees manage long-term property interests. The rule of doubt may apply when perpetuities violations are unclear, requiring careful legal interpretation.

The Bottom Line

The rule against perpetuities serves as a crucial safeguard in property law, preventing the indefinite tying up of assets and ensuring wealth eventually transfers to living beneficiaries. While complex in application, this doctrine promotes economic efficiency and prevents excessive concentration of family wealth across generations. For guidance specific to your situation, always consult a qualified, licensed attorney.