The law allows a person preparing a will or trust to have almost complete control over his or her assets after the testator or settlor passes on, but there are limits to such power. A person can restrict a property from being sold, or make sure that it is used for a specific purpose. A property can be bequeathed to a family member as long on condition that the person maintains the family business in a specific city, or exercises daily, or places flowers on the deceased’s grave every week, or engages in any other behavior the testator or settlor desires. This freedom, however, is not without limits. The time limit on this ability is called the rule against perpetuities. The rule is also referred to as the “dead man’s hand” statute.
The rule against perpetuities is complex and rarely utilized. It is an ancient common law rule which limits the length of time property can be tied up. At the time of the passing of the testator or settlor , the heirs of the estate are locked in. These heirs are referred to as “lives in being.” For the purposes of this rule, if a child is conceived but not yet born at the time of the testator’s death, it will be considered a life in being. Once the last living heir named in the will passes away, the restrictions on the property will continue in place as the testator desired for 21 years. The idea is that a testator or settlor may control his or her assets for a full generation after his or her death. The rule is notoriously difficult to apply properly. When it does apply, the conditions on the bequest are abandoned and the gift returns to the residual estate. Some states have repealed this Rule and allow for Dynasty Trusts that can go on in perpetuity if necessary. Although not often used and often not recommended, it is an option some testators and settlors wish to consider. California continues with the common law Rule but also provides an easier to understand and more readily ascertainable standard. In lieu of the 21 years after the death of some individual then alive, one can provide that the interest must vest or terminates with 90 years after creating of the dispositive instrument.
What makes this Rule, even more confusing is that, when an individual writes a will or trust he or she may make gifts to potential children or grandchildren. These children and grandchildren, however, may not be born until years later. If a child has been born at the time the decedent passes away, he or she is subject to the restrictions on the bequest during his or her lifetime. If a grandchild is conceived and born after the decedent’s death, however, the child may avoid the restrictions 21 years after the death of the last heir alive at the time of the decedent’s death. There is no way to predict when this might occur.
If you have any questions regarding your or estate plan in general, or would like a no-charge consultation about a plan that is just right for you, or amending an existing plan, please make an appointment with one of the knowledgeable estate planning attorneys at Schneiders & Associates, L.L.P.