When you create a trust as part of your estate plan, you can effectively control the disposition of your property for years, even decades, into the future. This can prove useful if you want to limit the distribution of an inheritance until your chosen beneficiaries reach a certain age. But there is a limit to such control, as expressed through what is known in the law as the “rule against perpetuities.”
At common law, the rule against perpetuities dictates that a gift can last only until 21 years after the death of the last potential beneficiary alive at the time of the trust’s creation. A number of states, including California, have amended the rule of perpetuities. Under the California rule, a trust must terminate after 90 years. This does not replace the common law rule entirely, but rather complements it. The common law rule declares a trust gift valid if it vests within 21 years after the last surviving beneficiary’s death. This is still the case under the California rule, but it also declares the gift valid if it is completed within 90 years of the trust’s creation.
What About Your Great-Great-Great Grandchildren?
The idea behind the rule of perpetuities is that you cannot tie up your assets forever in a trust after your death. The 90-year limit provides ample time to make provisions for your children and grandchildren, and maybe even your grand-grandchildren, but not beyond that. The rule against perpetuities presumes your will or trust does not mean to provide for descendants who are born in the distant future, long after your death.
But the rule against perpetuities is no longer universal. Many states, such as Florida and Delaware, abolished the rule, allowing for trusts to effectively continue indefinitely. It may benefit very wealthy individuals to establish trusts under the laws of these states.
Even within the rule against perpetuities there are exceptions. If your will or trust makes a conditional bequest to a charity, the rule may not apply. Let us say you own a piece of real property. Your trust states that, upon your death, the trust shall convey the property to Charity A, with the condition that the charity actually uses the property. In the event Charity A no longer uses the property, the trust states that the property shall then go to Charity B. This conveyance would not be subject to the rule against perpetuities. If, however, the trust states that, if Charity A no longer uses the property, it will go to a person, the rule still applies.
While the rule against perpetuities does not often come up in practice, a qualified California estate planning lawyer can still help explain this and other important legal concepts. Contact the Law Office of Scott C. Soady today if you have any questions.