Q. My wife and I own a vacation cottage, and we were wondering whether there would be any problem if we left it to our descendants in perpetuity, in our trust?
A. Yes, there would be a problem, at least if your cottage is located in California or in most (but not all) of the other states in the union. The reason: The Rule Against Perpetuities (“RAP”).
The RAP is a legal rule which comes down to us from old English common law, where it originated in the 17th century. It was designed to prevent the tying up of large, landed estates over many generations, as England moved from an agrarian economy into a more mercantile economy. Its purpose: 1) to facilitate the buying and selling of property by future generations, unencumbered by claims of antecedent ownership by a distant family of origin, (2) to avoid the “dead hand” of the original owner(s) from controlling ownership and use by future generations, and (3) to prevent large estates from being divided up and applied to their highest and best use as that appeared over time. In effect, it was designed to facilitate economic growth as the basic economy changed.
If a gift of an interest in property—whether made in trust or otherwise– were deemed to violate the RAP, then the gift would be deemed void, and would then devolve to the recipient(s) with a present income interest in the property. The RAP has been stated in its most pristine form by legal scholar, John Chapman Gray, in his 1886 treatise, as follows:
“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”.
Those few words, seemingly simple at first reading, are one of the most difficult concepts encountered by students in law school, because of the many layers of complexity buried therein. I, myself, recall spending no less than six (6) weeks in one class studying the meaning of those few words. The RAP in application is, in fact, so complex that the California Supreme Court, in 1961, actually ruled that it is not legal malpractice for an attorney to inadvertently violate the rule!
Nonetheless, most attorneys—at least in California—always include in their trusts a “savings provision”, such as the following”
“Notwithstanding any other provision of this instrument, every trust created by this instrument shall terminate no later than twenty-one (21) years after the death of the last survivor of the settlor’s issue who are alive at the creation of the trust”.
You might wonder where the age of 21 years comes from? We may remember that that used to be the age of majority in California and many other states, but my bet is that few, if any, readers would know where that number comes from. Here’s my answer: many years ago I learned that it came from old English common law as the age at which a young man were deemed to be big and strong enough to bear armor! Try that one on your friends at the next meet-up.
So, sorry that you won’t be able to restrict ownership of your California vacation cottage down through the generations, but know that, in being thus restricted, you are furthering the interest of the law and our economy by not tying up enjoyment of your property for more than, approximately, two (2) generations.
References: CA Probate Code re: RAP Rules