The rule against perpetuities is a rule of law in effect under the property, trusts, estate, and contract law of many common law jurisdictions. The rule invalidates certain future interests (traditionally contingent remainders and executory interests) that may vest beyond the perpetuities period. In essence, the rule "limit[s] the testator's power to earmark gifts for remote descendants".
The perpetuities period under the common law rule is not a fixed term of years. By its terms, the rule limits the period to at the latest 21 years after the death of last identifiable individual living at the time the interest was created. This "measuring" or "validating" life need not have been a purchaser or taker in the conveyance or devise. The measuring life could be the grantor, a life tenant, a tenant for a term of years, or in the case of a contingent remainder or executory devise to a class of unascertained individuals, the person capable of producing members of that class.
The rule prevents the property owner from distributing and controlling his assets for too long a period of time after his death—a concept often referred to as control by the "dead hand" or "mortmain". When a part of a grant or will violates the rule, only that portion of the grant or devise is removed; all other parts that do not violate the rule are still valid conveyances of property.
The rule against perpetuities is a common law rule and has been amended by later law or statutes. In England, the Statute of Uses (1536) and the Statute of Wills (1541) and the consequent rise of flexible future interests made the rule a significant judicial tool in defeating the intent of landowners in grants and devises. Major alterations to the common law rule in the United Kingdom came into effect under the Perpetuities and Accumulations Act of 1964, including the application of traditional 21-year limitation on options. The rule is studied in Australian trust and property law. In the United States it has been abolished by statute in Alaska, Idaho, New Jersey, and South Dakota. Twenty-six other U.S. states have adopted the Uniform Statutory Rule Against Perpetuities, which validates non-vested interests that would otherwise be void under the common law rule if that interest actually vests within 90 years of its creation. Other jurisdictions apply the "wait and see" or "cy-près" doctrines that validate contingent remainders and executory interests void under the traditional rule in certain circumstances. These doctrines have also been codified in the United Kingdom by the 1964 statute.
No interest is good unless it must vest, if at all, not later than twenty-one years after some life in being at the creation of the interest. For the purposes of the rule, a life is "in being" at conception.
When his second son, Henry, succeeded to one title, he did not want to pass the other to his younger brother, Charles. Charles sued to enforce his interest, and the court (in this instance the House of Lords) held that such a shifting condition could not exist indefinitely. The judges believed that tying up property too long beyond the lives of people living at the time was wrong, although the exact period was not determined until another case, Cadell v. Palmer, 150 years later.
At common law, the length of time was fixed at 21 years after the death of an identifiable person alive at the time the interest was created. This is often expressed as "lives in being plus twenty-one years." Under the common-law rule, one does not look to whether an interest actually will vest more than 21 years after the lives in being. Instead, if there exists any possibility at the time of the grant, however unlikely or remote, that an interest will vest outside of the perpetuities period, the interest is void and is stricken from the grant.
The rule does not apply to interests in the grantor himself. For example, the grant "For A so long as he does not sell alcohol on the premise, then to B" would violate the rule as to B. However, the conveyance to B would be stricken, leaving "To A so long as he does not sell alcohol on the premise." This would create a fee simple determinable in A, with a possibility of reverter in the grantor (or his heirs). The grant to B would be void as it is possible alcohol would be sold on the premise more than 21 years after the deaths of A, B, and the grantor. However, as the rule does not apply to grantors, the possibility of reverter in the grantor (or his heirs) would be valid.
In the United Kingdom, dispositions of property subject to the rule before 14 July 1964 remain subject to the rule.. The Perpetuities and Accumulations Act of 1964 provides for the effect of the rule of interests created thereafter. This act codifies the "wait and see" doctrine developed by courts.
About half of the states in the United States follow the Uniform Statutory Rule Against Perpetuities.
Other states follow a "wait and see approach", whereby if the interest does not vest within 21 years, the court will either reform the grant so it does or strike the clause that violates the rule.
Many states are repealing the rule in its entirety or extending the vesting period of the wait and see approach for an extremely long period of time (300 years, for example) in order to take advantage of a loophole in the 1986 Tax Act which has led to the formation of dynasty trusts. The 1986 Act allows the inheritance transfer tax to be avoided if a trust is set up that is valued over a floor minimum (2.5 million in 2005) for each transfer which would be allowed by the Rule Against Perpetuities. The result is that states with no Rule Against Perpetuities, or an irrelevant one, will attract more large trusts as there would never be a transfer tax on the trust. The increase of trust revenue benefits the state's economy.
The class of people must be limited and determinable. Thus, one cannot say in a deed "until the last of the people in the world now living dies, and then 21 years". For a time, it was popular to use a Royal lives clause, and make the term of a deed until the last of the descendants of (for example) Queen Victoria who now lives in being dies, plus 21 years. This was grudgingly upheld by the courts.