Rule Against Perpetuities

No interest is good unless it must vest or fail within some life in being at the creation of the interest plus 21 years

RULE AGAINST PERPETUITIES POLICY: POLICY:Balance limits on “dead hand control” vs. desire to allow owners to dispose of property as they wish

RULE AGAINST PERPETUITIES Idea: to prevent remote vesting of interests - Problems of alienability of property

RAP Tips It applies only to contingent future interests held by transferee: It applies only to contingent future interests held by transferee: contingent remainders/executory interests contingent remainders/executory interests does not apply to vested remainders does not apply to vested remainders Does NOT apply to interests retained by transferor (O or T) Does NOT apply to interests retained by transferor (O or T) so ignore: reversions, poss. of reverter, power of termination so ignore: reversions, poss. of reverter, power of termination

RAP TIPS Question is whether an interest is vested in interest, not vested in possession Question is whether an interest is vested in interest, not vested in possession e.g., “to A for 999 years, then to B” is perfectly OK because B has vested remainder e.g., “to A for 999 years, then to B” is perfectly OK because B has vested remainder Rule looks for when an interest vests or fails: when do you know for sure it will take or won’t take? Rule looks for when an interest vests or fails: when do you know for sure it will take or won’t take? e.g., “to A for life, then to my great-great- grandchildren then living.” OK, because any gggk will know by end of A’s life if it vests or fails e.g., “to A for life, then to my great-great- grandchildren then living.” OK, because any gggk will know by end of A’s life if it vests or fails

Remember Vested/Contingent Ascertained persons? Ascertained persons? Condition precedent? Condition precedent? If you know who is going to take and there are no conditions, then it is vested.

RAP Strategy 1. Identify the future interests - only future interests count: present estates not subject to Rule Example: “to A for life, then to B’s children” A’s interest not subject to rule, but remainder is

RAP Strategy 2. Look for Contingent Remainders or Executory Interests - Rule doesn’t apply to interests retained by the grantor - Rule doesn’t apply to vested remainders Example: “to A for life, then to B’s children” - remainder is contingent

RAP Strategy Note: for class gifts, the interest is not considered “vested” for purposes of the Rule until all members of the class are known. Note: for class gifts, the interest is not considered “vested” for purposes of the Rule until all members of the class are known. Example: “to A for life, then to B’s children.” B has one child, C. - we ask when we will know who all of B’s children will be. The fact the interest is now vested in C subject to open does not count.

RAP Strategy 3. Determine why those interests are contingent. - what event will make them vest or fail? Example: “to A for life, then to B’s children” - we will know who all of B’s children are at the end of B’s life (and not before)

RAP Strategy 4. Will the event happen within the lifetime of a person alive at the creation of the interest? - only look at lives that affect vesting Example: “to A for life, then to B’s children” We will know at end of B’s life who children are. Since B is alive at creation of interest, the remainder is valid under the Rule.

RAP Strategy Note: look at 21 year period only if there is a year limitation in the conveyance Note: look at 21 year period only if there is a year limitation in the conveyance Example: “to A for life, then to A’s children who reach 21” - you will know who all the possible takers are 21 years after the end of A’s life

RAP Strategy Summary 1. Identify the future interests 2. Look for Contingent Remainders or Executory Interests 3. Determine why those interests are contingent; when will they vest? 4. Will the event happen within the lifetime of a person alive at the creation of the interest? =“Validating life”

“to A for life, then to A’s first child to reach 21” 1. Valid 2. Invalid

to A for life, then to A’s first child to get married 1. Valid 2. Invalid

RAP Problems Ex. 25: “” If O: exec. int. is invalid: O may have more kids When O dies, we will know all of her kids; but won’t know all grandkids until all of O’s kids die, so can’t use them to validate the gift. If T: exec. int. is valid, because T can’t have more kids Now we can use O’s kids as the validating lives. At the end of their lives, we will know who the gk are; 21 yrs. later, we’ll know if they fulfill condition Now we can use O’s kids as the validating lives. At the end of their lives, we will know who the gk are; 21 yrs. later, we’ll know if they fulfill condition

T creates trust in her will “to my grandchildren who reach 21” 1. Valid 2. Invalid Would this be valid if it was an inter vivos conveyance rather than a will?

T creates trust to be paid “to A for life, to A’s son B for life, to A’s grandson C for life, then to D.” 1. D’s interest valid 2. D’s interest invalid

RAP Problems 1. O conveys “to A for life, then to B if B attains the age of 30.” B is 2 yrs old. Interest is valid: B is the validating life 1. Identify future interests 2. Look for Contingent Remainders or Executory Interests 3. Determine why those interests are contingent; when will it vest? 4. Will event happen within the lifetime of a person alive at the creation of the interest?

RAP Problems 2. O conveys “to A for life, then to A’s children for their lives, then to B if B is then alive, and if B is not then alive, to B’s heirs.” A has no children at time of conv. A’s children have conting. Rem. in life estate, valid because A is validating life. B has conting. remain. in fee simple, valid because B is validating life B’s heirs have altern. conting. remain.- valid. B is valid. life 1. Identify future interests 2. Look for Contingent Remainders or Executory Interests 3. Determine why those interests are contingent 4. Will event happen within the lifetime of a person alive at the creation of the interest?

RAP Problems 3. “for all members of my present property class who are admitted to the bar.” OK: class are valid. lives “for the first child of A who is admitted to bar.” If A is alive, gift in invalid 1. Identify future interests 2. Look for Contingent Remainders or Executory Interests 3. Determine why those interests are contingent 4. Will event happen within the lifetime of a person alive at the creation of the interest?

O conveys “to A for life, then to A’s widow, if any, for life, then to A’s issue then living.” 1. Interest in A’s issue valid 2. Interest in A’s issue invalid

RAP problem O conveys “to A for life, then to B for life, then to C for life, then to any of A’s great-grandchildren then living for life, then to B.” Is B’s interest void? NO: RAP applies only to contingent interests. Is gift to A’s ggk void? NO: will know at the end of A, B, and C’s lives who the takers are

Executory Interests FSD: “to Drake so long as used as school, then to my son Joe.” FSD: “to Drake so long as used as school, then to my son Joe.” When will it vest? Maybe never? When will it vest? Maybe never? void the exec. int., O has poss. of reverter void the exec. int., O has poss. of reverter FSS: “to Drake in fee simple, but if not used as school, then to my son Joe.” FSS: “to Drake in fee simple, but if not used as school, then to my son Joe.” NOW, strike exec. int. and Stetson gets a fee simple!! NOW, strike exec. int. and Stetson gets a fee simple!! NB: if both interests to charity, it’s OK NB: if both interests to charity, it’s OK

Executory Interests RAP does not apply to interests retained by grantor, so how could you carry out wishes of O in these problems with two pieces of paper? - first create FSD, retain the poss. of reverter; then transfer the reverter to Joe (if alienation allowed in that state)

Jee v. Audley Edward’s will: legacy of 1000 £ “to my wife for life, then to Mary, but upon failure of issue, to daughters of John and Eliz. then living.” Edward’s will: legacy of 1000 £ “to my wife for life, then to Mary, but upon failure of issue, to daughters of John and Eliz. then living.” Why is the interest to daughters invalid? Why is the interest to daughters invalid? Exec interest: will only vest if Mary’s line dies out; J&E daughters can’t be validating lives b/c they might be born later. Exec interest: will only vest if Mary’s line dies out; J&E daughters can’t be validating lives b/c they might be born later.

Modern Reform of Rule Wait and see (inc. Iowa) Wait and see (inc. Iowa) E.g. fertile octagenarian: O’s conveyance “to my grandchildren” is invalid only if O has another child. E.g. fertile octagenarian: O’s conveyance “to my grandchildren” is invalid only if O has another child. Cy pres or reformation Cy pres or reformation Devise “to my grandchildren who reach 25” can be reformed to “21” Devise “to my grandchildren who reach 25” can be reformed to “21” USRAP: sets 90 year permissible vesting period (wait and see if interests vest) USRAP: sets 90 year permissible vesting period (wait and see if interests vest)

Estate of Keenan 519 N.W.2d 373 (1994) I devise the rest and residue of my estate to a trust to be established at the First Interstate Bank of Urbandale, as follows: 1) A perpetual fund is to be established for the purposes of providing scholarships to any blood descendants of my husband or myself. 2) There will be no distribution of funds to an individual unless the individual has completed at least one semester at an accredited college or university and maintained a 3.0 academic average on a scale of 4.0. Thus, the devise was basically a springing executory interest: “to those of my descendants who complete a semester of college” I devise the rest and residue of my estate to a trust to be established at the First Interstate Bank of Urbandale, as follows: 1) A perpetual fund is to be established for the purposes of providing scholarships to any blood descendants of my husband or myself. 2) There will be no distribution of funds to an individual unless the individual has completed at least one semester at an accredited college or university and maintained a 3.0 academic average on a scale of 4.0. Thus, the devise was basically a springing executory interest: “to those of my descendants who complete a semester of college”

Estate of Keenan Court held that RAP voided the trust clause: descendants could take indefinitely Court held that RAP voided the trust clause: descendants could take indefinitely However, court used “wait and see” to allow scholarships to be paid any of those relatives living at the time of Keenan’s death who fulfilled condition However, court used “wait and see” to allow scholarships to be paid any of those relatives living at the time of Keenan’s death who fulfilled condition Why void this? Modern trend allows perpetual trusts. Why void this? Modern trend allows perpetual trusts.