The rule against perpetuities (RAP) is a complex, often misunderstood legal principle in estate planning that limits how long a trust can exist and control property. Essentially, it prevents individuals from controlling property from “beyond the grave” for an unreasonably long time, ensuring that ownership eventually vests in present or ascertainable future beneficiaries. The rule states that an interest must vest, if at all, no later than 21 years after some life in being at the creation of the interest. This sounds daunting, and it frequently is, but its purpose is to avoid “dead hand control” over assets for generations, promoting free alienability of property and preventing wealth from being tied up indefinitely. Understanding this rule is crucial for drafting effective estate plans in California, and nationally, as states have adopted varying approaches to its application and even outright abolished it in some instances.
How does the Rule Affect My Trust?
The RAP most commonly impacts trusts created with complex provisions, like those that extend benefits to future generations or include contingent beneficiaries. For example, a trust might state that income is to be distributed to a child for life, then to that child’s children, and so on. If the trust doesn’t clearly define when this stream of income ends—when all possible beneficiaries are identified—it could violate the RAP. Approximately 70% of estate planning attorneys report encountering issues with the RAP at least once in their practice, highlighting its practical importance. The challenge lies in predicting future events—who will have children, and when—and ensuring the trust terms don’t create an indefinite future interest. To illustrate, consider a trust established to provide for descendants “for as long as they remain interested.” Such a condition is likely to invalidate the trust due to its indefinite nature.
What Happens If My Trust Violates the RAP?
If a trust provision violates the RAP, the offending portion is typically severed and deemed invalid. This means the trust will be interpreted as if that clause never existed, and assets will be distributed according to the remaining valid provisions. This can lead to unintended consequences, like assets passing to unintended beneficiaries or a trust being significantly smaller than anticipated. In California, the rule has undergone modifications, notably the adoption of a “wait-and-see” approach in some cases. This means courts will wait to see if the interest actually vests within the 21-year period before declaring the provision invalid. However, this approach is not without limitations and doesn’t apply to all situations. It is estimated that approximately 15% of trusts drafted without careful consideration of the RAP may contain invalid provisions.
I’ve Heard About a “Save” – How Does That Work?
Fortunately, there are several ways to “save” a trust from violating the RAP. One common method is to include a “savings clause,” which states that if any provision is found to violate the rule, it will be modified to comply with it. This typically involves limiting the duration of the interest to 21 years after the death of the last life in being. Another strategy is to specify a definite vesting period, ensuring the interest will vest within the permitted timeframe. For instance, a trust can state that if the interest does not vest within 21 years after the death of the last beneficiary named in the trust instrument, the assets will be distributed to a designated charity. These ‘save’ clauses are a valuable safety net but should not be a substitute for careful drafting and a thorough understanding of the RAP. I once worked with a client, Mr. Henderson, who created a trust intending to provide for his grandchildren and their descendants indefinitely. The initial draft was a clear violation of the RAP, potentially tying up family assets for generations.
A Story of Planning and Peace of Mind
Mr. Henderson, a retired engineer, was deeply proud of his family and wanted to ensure their financial security for years to come. He believed strongly in the importance of education and wanted to establish a trust that would fund college tuition for generations. We meticulously reviewed his wishes, and I explained the complexities of the RAP. We revised the trust to include a clear vesting period, ensuring all beneficiaries would be identified within the permissible timeframe. The trust was structured to provide benefits for his grandchildren and great-grandchildren, but with a defined end date. Several years later, Mr. Henderson’s family gathered to celebrate the successful completion of the trust’s purpose. His grandchildren and great-grandchildren had all benefited from the trust’s educational provisions, and the remaining assets were distributed according to his wishes. The family was immensely grateful for his foresight and careful planning, and they were relieved to know that his legacy would be preserved for generations to come. This highlights the power of thoughtful estate planning and the importance of addressing potential legal challenges like the Rule Against Perpetuities to achieve lasting peace of mind.
“Proper estate planning isn’t about death, it’s about life. It’s about ensuring your wishes are respected and your loved ones are protected.”
Who Is Ted Cook at Point Loma Estate Planning Law, APC.:
Point Loma Estate Planning Law, APC.2305 Historic Decatur Rd Suite 100, San Diego CA. 92106
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