Tag: Perpetuity Period
No words strike fear into the hearts of most estates lawyers like the “rule against perpetuities”. Horrible memories of first year property law class, and dire warnings about how nobody truly understands how to apply the ancient and archaic principles which have developed over centuries, leave most lawyers wanting to avoid the subject at all costs. Although the cases can sometimes be hard to understand, the foundational principles and modern application of the rule against perpetuities is actually relatively simple.
The rule against perpetuities is an ancient common law doctrine which restricts the ability of an individual to control property over a prolonged period of time. At its most simple, the rule against perpetuities can be understood as not allowing an individual to control the distribution or ownership of property for longer than the “perpetuity period”, with the perpetuity period equating to a “life in being” who is alive upon the death of the testator plus twenty one years. A “life in being” is the lifetime of an individual who may receive, or is somehow associated to, the gift of the property. To this respect, an individual cannot control the ownership or distribution of property in their Will for longer than the lifetime of an individual who is alive upon the death of the testator and somehow associated with the gift, plus twenty one years after such an individual’s death. If a gift offends the rule against perpetuities, it is declared void.
In Ontario, the application of the rule against perpetuities is governed by the Perpetuities Act. Section 4(1) of the Perpetuities Act establishes a “wait and see” approach to determining if a gift offends the rule against perpetuities. What this in effect means is that simply because a bequest could offend the rule against perpetuities does not result in the gift immediately being declared void, as you must wait to see if the gift actually does offend the rule against perpetuities. Only in the event that the gift does ultimately vest outside of the perpetuity period is it declared void.
Take for example the hypothetical bequest of a property to a local charity so long as they use the property for the benefit of the charity. Should the charity cease to use the property for the purpose of the charity, the property would instead be distributed to the deceased’s issue (i.e. descendants) in equal shares per stirpes. The “perpetuity period” in this instance would be the lifetime of one of the deceased’s descendants alive on the deceased’s death who ultimately lives the longest after the deceased’s death (likely the youngest descendant alive upon the deceased’s death, although not necessarily) plus twenty one years after such a descendant’s death. Although it is conceivable that the charity could continue to use the property for longer than the lifetime of such a descendant plus twenty one years, such that the gift-over to the deceased’s issue could offend the rule against perpetuities and be declared void, you do not immediately declare such a gift void at the time of the deceased’s death. Rather, you must “wait and see” if the triggering event (i.e. the charity ceasing to use the property) occurs during the perpetuity period (i.e. the lifetime plus twenty one years of the descendant in question). Only upon the triggering event not occurring during the perpetuity period would the gift be declared void for offending the rule against perpetuities.
See, not so scary after all.