Property law can be complex and arcane, even for lawyers and judges. The rule against perpetuities is an example of how older property laws can influence how families transfer and inherit property rights. Well-meaning grantors create wills defining their wishes for their grandchildren to inherit property. Unfortunately, the rule against perpetuities may prevent a property from staying in the family if it takes too long for the will’s conditions to be met. The rule against perpetuities creates a standard for when an interest in land or property must vest. If you’re worried about securing the future ownership of your property it could be beneficial to work with an experienced financial advisor.
The rule against perpetuities stipulates that a will, estate plan or other legal document intending to transfer property ownership more than twenty-one years after the death of the primary recipient is void. In other words, the rule prevents a grantor from legally guaranteeing that their grandchildren, great-grandchildren or other heirs far in the future will retain ownership of the grantor’s property.
For example, let’s say Anne owns and runs a vineyard. Her son John and his wife Mary live on the edge of the vineyard and help Anne with operations. Anne is growing old but wants the land to stay in the family. So, she leaves the vineyard to John, plus a contingency that allows any future children of John and Mary to take ownership of the property upon turning twenty-six. Since John is the beneficiary, he is known as the ‘measuring life’ or ‘life in being’ when Anne drafted the interest in the property.
Anne passes away, and John and Mary have a child a year later. Two years after that, John and Mary perish in a plane crash. Although they owned the vineyard, their child will not turn twenty-six for another twenty-four years, violating the rule against perpetuities, which prevents the transfer of property from occurring more than twenty-one years after the death of the measuring life or life in being.
The rule against perpetuities has its roots in 17 th century England. English courts wanted heirs and descendants to buy and sell land without undue influence from long-dead ancestors who tried to legally set their intentions in stone for coming decades or centuries.
The United States law has also held this rule since the country’s inception. However, the interpretation and application of the rule have been inconsistent at best. For example, in the case of Jason Oil Co. v. Littler, the Kansas Supreme Court did not implement the rule, arguing that applying the rule in specific cases can lead to families holding land in perpetuity.
As a result, many legal authorities see the rule as outdated, confusing and draconic, and some states have drafted modifications or new laws to change it. In 1986, thirty-one states adopted a “wait-and-see” approach, meaning that an interest in a property must vest within ninety years of the implementation of a will or life estate.
In the United States, the wait-and-see statute helps alleviate the challenges the rule causes. Thirty-one states have passed this statute, meaning the twenty-one-year limit no longer prevents property interests from vesting. Instead, a will or similar legal document has ninety years for interest to vest before it becomes void.
The extended timeframe gives more flexibility for property to pass down to heirs. From the example above, if Anne’s family lived in a wait-and-see state, her grandchildren’s interest in the vineyard would have been vested without the rule against perpetuities getting in the way.
Vesting is when a property is transferred to the life in being. In our previous example, when Anne passes away, the property interest ‘vests’, meaning John receives ownership of the vineyard. Therefore, vesting could only occur with Anne’s death.
In addition, the property interest for Anne’s grandchildren through John would only vest when at least one of the grandchildren turned twenty-six. Therefore, vesting is usually tied to the testator’s death or a timeframe for specific events. If vesting doesn’t occur or occurs outside the 21 years allowed by the rule against perpetuities, an heir’s interest in a property is likely to void.
Although the rule against perpetuities is now in effect in only nineteen states, its influence on property transfer law can impose restrictions on how a grantor’s descendants inherit property. With only twenty-one years to vest after the death of the first beneficiary or life in being, property rights can become void through the rule against perpetuities. If you’re drafting a will or completing your estate planning, it’s essential to understand how your state handles the rule so you can guarantee that your property passes to your intended beneficiaries.
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Ashley KilroyAshley Kilroy is an experienced financial writer currently serving as an investment and insurance expert at SmartAsset. In addition to being a contributing writer at SmartAsset, she writes for solo entrepreneurs as well as for Fortune 500 companies. Ashley is a finance graduate of the University of Cincinnati. When she isn’t helping people understand their finances, you may find Ashley cage diving with great whites or on safari in South Africa.
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