April 6, 2012
Shepard on The Rule Against Perpetuities
Scott Shepard (John Marshall) has posted A Uniform Perpetuities Reform Act (NYU J. of Leg. & Public Policy) on SSRN. Here's the abstract
For centuries the Rule Against Perpetuities provided protection against a pair of dangers: that important stocks of property would become, effectively, permanently inalienable as a result of perpetual conditional gifts; and that the dead would be permitted to control the destinies of the living by placing permanent conditions on the fixed stock of available wealth (i.e., land wealth). In recent decades, though, the states have increasingly abandoned the Rule and its protections. As of 2011 all states have migrated beyond the traditional “21-years-plus-life-in-being” Rule, and more than half have actually or effectively abolished their Rules, at least insofar as applied to grants made in trust form.
This migration is, in the main, quite sensible. The traditional Rule was complicated, hard to apply, inefficient, and unsupple. Even the 90-year wait-and-see variation which has come mostly to supplant the traditional Rule cannot differentiate between wise and beneficent gifts that should survive beyond the 90-year threshold and problematic gifts that should not. The danger of inalienability can be dealt with by transmuting legal interests into equitable interests at some date certain, and by granting trustees of those equitable interests the power of alienation as a matter of law as of the same date. The dangers of dead-hand control have already largely dissipated because wealth is not primarily, today, held in the form of an ungrowing and social-and-political-power-soaked stock such as land, but rather in a variety of highly mutable forms, none of which carry with them overarching political or social overtones. Remaining concerns about the small category of problematic dead-hand incentives can be resolved by targeted adjustments to well-established aspects of property and trust law that carry none of the disadvantages of the Rule Against Perpetuities in any of its forms.
In short, then, the states have no good reason to revive their Rules Against Perpetuities, and it should not be imagined that they will. Abolition of those Rules does, however, raise some few legitimate concerns about alienability and dead-hand incentives, concerns best and most efficiently resolved by a few careful amendments to state trust and property law. This article proposes and explains a Uniform Perpetuities Reform Act with which Rule-abolishing states can make these targeted changes.
April 6, 2012 | Permalink
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