Rule Against Perpetuities
The Rule Against Perpetuities (RAP) is a common law legal principle that prevents property interests from being tied up indefinitely in the future, ensuring that ownership vests within a specific period to promote alienability.
Key Takeaways
- The Rule Against Perpetuities (RAP) prevents future property interests from vesting too remotely, typically beyond 'lives in being plus 21 years'.
- Its primary purpose is to promote the alienability of land and prevent 'dead-hand control' over property for generations.
- RAP applies to contingent future interests, such as contingent remainders, executory interests, and certain long-term options or rights of first refusal.
- Violations of RAP can render future interests void from inception, leading to unintended consequences for estate plans and property transactions.
- Many states have adopted 'wait-and-see' statutes or statutory reforms like the USRAP to mitigate the harshness of the common law RAP, often extending the perpetuity period.
- Sophisticated real estate investors must consult legal counsel to structure long-term property agreements and trusts to avoid RAP pitfalls.
What is the Rule Against Perpetuities?
The Rule Against Perpetuities (RAP) is a venerable common law doctrine designed to prevent the indefinite tying up of property ownership in the future. Its fundamental objective is to ensure that property remains alienable—meaning it can be freely bought, sold, or transferred—rather than being controlled by the dictates of past generations for an unreasonably long time. Originating in England in the 17th century, the rule addresses the societal concern that overly complex or long-lasting future interests could hinder economic development and efficient land use.
In essence, RAP dictates that a future interest in property must vest, if at all, within 21 years after the death of someone alive at the time the interest was created (a 'life in being'). If there is any possibility, however remote, that the interest might vest outside this period, the interest is deemed void from its inception. This strict 'what if' test often leads to complex legal analysis and can invalidate seemingly innocuous provisions in wills, trusts, and real estate contracts.
Core Principles and Mechanics
The Perpetuity Period: 'Lives in Being Plus 21 Years'
The cornerstone of RAP is its measuring period: 'lives in being plus 21 years.' A 'life in being' refers to an individual who is alive and ascertainable at the moment the property interest is created (e.g., when a will becomes effective or a trust is established). These lives must be human, not corporate entities, and their number must not be so large as to make it impossible to track their deaths. The 21-year period is an absolute term, added after the death of the last relevant 'life in being.' The rule demands that the future interest must either vest or fail definitively within this timeframe.
Interests Subject to RAP
RAP primarily applies to contingent future interests, which are interests whose ownership is uncertain or conditional. These include:
- Contingent Remainders: Future interests that depend on an uncertain event or an unascertained person.
- Executory Interests: Future interests that divest a prior estate, often arising in trusts.
- Options to Purchase and Rights of First Refusal: Especially those without a specific, limited duration, as they can tie up property indefinitely.
It generally does not apply to vested interests, present interests, or certain reversionary interests like possibilities of reverter or rights of entry, though some jurisdictions have extended its reach to these as well.
Practical Implications for Real Estate Investors
Impact on Trusts and Estate Planning
For real estate investors involved in sophisticated estate planning, particularly those establishing long-term family trusts or dynasty trusts designed to hold real property across generations, RAP is a critical consideration. A trust provision granting property to 'my grandchildren who reach age 25' could violate RAP if there's a possibility that a grandchild might be born after the death of all 'lives in being' and not reach 25 within 21 years of that last death. Such a violation would invalidate the entire future interest, potentially leading to unintended beneficiaries or property distribution.
Options and Rights of First Refusal
Long-term options to purchase real estate or rights of first refusal can also fall prey to RAP. If an option is exercisable 'at any time within 50 years' or 'upon the death of the last surviving heir of the grantor,' it likely violates RAP because the vesting of the property interest (the purchase) is not guaranteed to occur within the perpetuity period. While commercial options are sometimes treated differently or exempted in some jurisdictions, investors must be acutely aware of these limitations when drafting or evaluating such agreements.
Real-World Scenarios and Calculations
Example 1: Contingent Remainder in a Family Trust
Consider a trust established by John Doe in 2024, stating: 'To my children for life, then to such of my grandchildren as attain the age of 25.' At the time of the trust's creation, John has two living children, Alice (age 40) and Bob (age 35), and three grandchildren. The 'lives in being' are John, Alice, and Bob. The interest for the grandchildren is contingent because they must reach age 25. If Alice or Bob were to have another child (a 'fertile octogenarian' scenario) who then has a grandchild, and all 'lives in being' (John, Alice, Bob) die, it's possible for this new grandchild to reach 25 more than 21 years after the death of the last 'life in being.' Under strict common law RAP, this future interest would be void, and the property would revert to John's estate or pass to his residuary heirs.
Example 2: Long-Term Commercial Option Agreement
A real estate developer enters into an agreement in 2023 giving them an option to purchase a prime commercial parcel 'at any time within 40 years' from the current owner, a corporation. Since a corporation is not a 'life in being,' the perpetuity period is simply 21 years from the creation of the interest. As the option is exercisable for 40 years, it clearly extends beyond the 21-year period. Under common law RAP, this option would be void, potentially leaving the developer without the right to purchase the land, despite the contractual agreement.
Modern Reforms and Mitigation Strategies
'Wait-and-See' Statutes and Uniform Statutory Rule Against Perpetuities (USRAP)
Recognizing the harshness and complexity of the common law RAP, many U.S. states have adopted statutory reforms. 'Wait-and-see' statutes, for instance, modify the rule by allowing the perpetuity period to run its course to see if the interest actually vests within the period, rather than voiding it based on a mere possibility. The Uniform Statutory Rule Against Perpetuities (USRAP), adopted by a significant number of states, provides an alternative 90-year 'wait-and-see' period, offering a more predictable and practical framework for long-term property planning.
Drafting Strategies to Avoid RAP Violations
To mitigate RAP risks, sophisticated investors and their legal counsel employ several strategies:
- Include a Savings Clause: A well-drafted trust or will often contains a 'perpetuities savings clause' that automatically terminates or modifies any interest that would otherwise violate RAP, ensuring it vests within the statutory period (e.g., 21 years after the death of the last beneficiary alive at the trust's creation, or 90 years under USRAP).
- Specify Time Limits: For options or rights of first refusal, explicitly state a reasonable, definite time limit (e.g., 20 years) that is well within any applicable perpetuity period.
- Consult Legal Experts: Given the intricate nature of RAP and its state-specific variations, engaging experienced estate planning and real estate attorneys is paramount to ensure compliance and avoid costly errors.
Frequently Asked Questions
What is the primary purpose of the Rule Against Perpetuities?
The primary purpose of RAP is to prevent property interests from being tied up indefinitely by future conditions or remote beneficiaries. It promotes the free alienability of land, ensuring that property can be bought, sold, and developed without being subject to perpetual control by deceased owners, thereby fostering economic activity and efficient resource allocation.
How is 'lives in being' determined for RAP calculations?
'Lives in being' refers to individuals who are alive and ascertainable at the moment the property interest is created (e.g., the testator's death for a will, or trust creation date). These must be human lives, not corporations, and their number must be manageable enough to track. They serve as the measuring stick for the perpetuity period, which extends 21 years beyond the death of the last relevant 'life in being'.
Does RAP apply to all types of property interests?
No, RAP primarily applies to contingent future interests, such as contingent remainders and executory interests, where the vesting of ownership is uncertain. It generally does not apply to present interests, vested future interests, or certain reversionary interests like possibilities of reverter or rights of entry, although some jurisdictions have expanded its scope to include these.
What are the consequences of violating the Rule Against Perpetuities?
If a future interest violates the common law Rule Against Perpetuities, it is deemed void from its inception. This means the offending provision is struck from the will, trust, or contract, and the property interest either reverts to the grantor's estate or passes to other beneficiaries as if the void provision never existed. This can lead to significant unintended consequences and complex legal disputes.
How have modern statutory reforms changed the common law RAP?
Modern statutory reforms, such as 'wait-and-see' statutes and the Uniform Statutory Rule Against Perpetuities (USRAP), have softened the strictness of the common law RAP. Instead of voiding an interest based on a mere possibility of remote vesting, these reforms often allow the perpetuity period to run its course to see if the interest actually vests within the period. USRAP, for example, establishes an alternative 90-year 'wait-and-see' period for vesting.