Rule against Perpetuities
The common law rule against perpetuities forbids some future interests (traditionally contingent remainders and executory interests) that may not vest within the time permitted; the rule "limit[s] the testator's power to earmark gifts for remote descendants". In essence, the rule prevents a person from putting qualifications and criteria in his will that will continue to control or affect the distribution of assets long after he or she has died, a concept often referred to as control by the "dead hand" or "mortmain".
The rule is often stated as follows: “No interest is good unless it must vest, if at all, not later than twenty-one years after the death of some life in being at the creation of the interest.” For the purposes of the rule, a life is "in being" at conception. Although most discussions and analysis relating to the rule revolve around wills and trusts, the rule applies to any future dispositions of property, including options. When a part of a grant or will violates the rule, only that portion of the grant or devise is removed. All other parts that do not violate the rule are still valid. The perpetuities period under the common law rule is not a fixed term of years. By its terms, the rule limits the period to at the latest 21 years after the death of the last identifiable individual living at the time the interest was created ("life in being"). This "measuring" or "validating" life need not have been a purchaser or taker in the conveyance or devise. The measuring life could be the grantor, a life tenant, a tenant for a term of years, or in the case of a contingent remainder or executory devise to a class of unascertained individuals, the person capable of producing members of that class.
The rule against perpetuities at common law has been amended by statutes. In England, the Statute of Uses (1536) and the Statute of Wills (1540) and the consequent rise of flexible future interests made the rule a significant judicial tool in defeating the intent of landowners in grants and devises. Major alterations to the common law rule in the United Kingdom came into effect under the Perpetuities and Accumulations Act 1964, including the application of traditional 21-year limitation on options.
The rule is notoriously difficult to properly apply, as pointed out by a 1961 decision of the Supreme Court of California which held that it was not legal malpractice for an attorney to draft a will that inadvertently violated the rule against perpetuities. Therefore, in the United States it has been abolished by statute in Alaska, Idaho, New Jersey, Pennsylvania and South Dakota. The Uniform Statutory Rule Against Perpetuities validates non-vested interests that would otherwise be void under the common law rule if that interest actually vests within 90 years of its creation; it has been enacted in 26 states (Alabama, Alaska, Arizona, Arkansas, California, Colorado, Connecticut, Florida, Georgia, Hawaii, Indiana, Kansas, Massachusetts, Minnesota, Montana, Nebraska, Nevada (365 years), New Jersey, New Mexico, North Carolina, North Dakota, Oregon, South Carolina, South Dakota, Tennessee, Utah, Virginia, Washington, West Virginia), the District of Columbia and the U.S. Virgin Islands, and is currently under consideration in New York. Other jurisdictions apply the "wait and see" or "cy-près doctrine" that validate contingent remainders and executory interests void under the traditional rule in certain circumstances. These doctrines have also been codified in the United Kingdom by the 1964 statute.
The states of the United States have differing approaches. Some states follow the "wait-and-see approach," or "second look doctrine," and/or apply the "cy pres doctrine". Under the wait and see approach, the validity of a suspect future interest is determined on the basis of facts as they now exist at the end of the measuring life, and not at the time the interest was created. Under the cy pres doctrine, if the interest does violate the rule against perpetuities, the court may reform the grant in a way that does not violate the rule, and will reduce any offensive age contingency to 21 years.
Other states have adopted the Uniform Statutory Rule Against Perpetuities (or some variant of it) which extends the waiting period typically to 90 years after creation of the interest.
Many states have repealed the rule in its entirety, or extended the vesting period of the wait and see approach for an extremely long period of time (in Florida, for example, up to 360 years for trusts). The motive behind these reforms seems at least in part the desire to take advantage of a loophole in the 1986 Tax Act which has led to the formation of dynasty trusts. The 1986 Act allows the inheritance transfer tax to be avoided if a trust is set up that is valued over a floor minimum (US$2.5 million in 2005) for each transfer which would be allowed by the Rule Against Perpetuities. The result is that states with no Rule Against Perpetuities, or an extremely long perpetuities period, will attract more large trusts as there would never be a transfer tax on the trust.