The Rule Against Perpetuities
In September of 2008 the Attorney General for the Province of Nova Scotia requested the Commission’s advice and recommendations concerning the rule against perpetuities (“the Rule”). This followed a request from the Nova Scotia Barristers’ Society to the Nova Scotia government, that the province develop legislation to abolish the Rule. This Discussion Paper sets out the Commission’s preliminary proposals for reform, and invites comments as to those proposals and related matters.
The rule against perpetuities limits the duration of certain restrictions on the use and transfer of property. The Rule is to the effect that no legal interest in property is valid unless it is certain, at the time when the disposition (e.g., a trust) takes effect, that the interest must vest within a life or lives in being plus twenty-one years.1 In other words, property may not be tied up in trust, subject to restricted use, or otherwise held subject to any contingency, for longer than twenty-one years after the death of a person who is alive at the time of the disposition and whose life is relevant to the validity of the disposition. The Rule applies to all sorts of property interests - e.g., options to purchase, conditional easements, remainder estates, etc. - but today arises most commonly in connection with trusts.
The Rule is generally understood to serve the purpose of balancing the rights of property owners to impose conditions on the use and exchange of their property against the importance of having property under the control of living persons, so that it may be put to its best contemporary use.
The common complaint is that the Rule is simply too complex and abstract in its application, resulting in a substantial risk that beneficiaries or grantees will be deprived of their interests through inadvertent errors in drafting. In the estate planning context, a great number of vesting conditions may offend the Rule, most often unintentionally, and often only hypothetically in any event. The consequence of a breach is very real, however; the intended gift or transfer will generally be entirely invalid.
In practice, the difficulty arises largely from the Rule’s preoccupation with remote hypotheticals. The question of whether a disposition offends the rule is decided at the time that the disposition takes effect (e.g., in the case of a will, upon the death of the testator). At that point, it must be certain that there is no possible contingency upon which the legal interest in the property may not vest within the perpetuity period. Even if it can be anticipated that later events will likely foreclose the possibility of the interest failing to vest, the gift will nonetheless be invalid at the outset. In order to be certain, at the time when the disposition is effective, that the interests it creates are valid, all contingencies possible as of that time must be canvassed. If one of them results in an interest vesting beyond the perpetuity period, or not at all, the disposition is void at the outset.
The complexity of the Rule is compounded by the concept of identifying a ‘life or lives in being’, and the not always clear distinction between vested and contingent property interests. The Rule is also marked by a series of exceptions that depend in many cases on very subtle distinctions in language; e.g., the distinction between conditions subsequent (bound by the Rule) and determinable fees (not bound). All of this compexity leads to a series of traps for the drafter of a postponed, restricted or conditional property transfer. Only with a complete grasp of the Rule, including all of its exceptions and partial exceptions, and a thorough canvasing of all remote and unlikely possibilities of lifespan and life events of all possible ‘lives in being’ and their offspring, can the drafter have confidence that perpetuities problems have been avoided.
Given these difficulties, the Rule has been subject to significant reform in most jurisdictions other than Nova Scotia. The most common sort of reform - referred to generally as ‘wait and see’ - maintains the substance of the Rule, but allows the disposition to run its course for the perpetuity period, rather than declaring it to be invalid at the outset. An unlikely, but possible contingency which under the common law Rule would invalidate the transfer at the outset may be foreclosed within the perpetuity period. If so, under ‘wait-and-see’ the transfer will be saved. Wait and see reforms are often accompanied by further saving provisions, in case the gift remains invalid even after the perpetuity period has run its course. These rules authorize the court to modify the terms of the transfer only so much as is necessary to save it from invalidity under the Rule.
We recommend abolition. We are not persuaded that there is anything necessarily objectionable about all long-term trusts and other sorts of conditional property interests. Certainly in some cases they will present inconvenience or hardship, but in those cases we see the value of a court power to modify or terminate the interest, with due consideration for the benefit of the holder where appropriate. The experience of the courts under variation of trusts legislation strengthens our impression that a case- specific approach to the problem of unvested, contingent property interests is preferable to a categorical rule which deems all such interests void after a certain period of time. Along with our proposal for the abolition of the rule against perpetuities, we propose the expansion of the courts’ power to vary trusts. In particular, we would not require the consent of all adult, capacitated beneficiaries, as the Variation of Trusts Act now effectively does. The requirement for consensus puts too much power in the hands of a recalcitrantbeneficiary, with no recourse to have a dispute about a proposed variation of the terms of the trust to account for changing circumstances properly adjudicated.
We further propose a new variation power in respect of non-trust unvested property interests, along the lines of the variation of trusts legislation. These interests may present inconvenience or hardship to the present-day holders of property, and we think the court ought to be able to deal with them in such cases. We propose certain limits on the exercise of the power - in particular that notice be given to the holder of such interest if at all possible, that the intentions of the transferor, if objectively ascertainable, be respected, and the requirement for compensation in some cases to be paid or held in trust for any ascertained or ascertainable interest holder. We would not impose any requirement that a certain period of time must pass before the power may be exercised.
Finally, we propose that the abolition of the Rule be made retrospective, so as to apply to any interest which might be held invalid under the Rule, regardless of when the transferring instrument (e.g., will or deed) was effective. The proposed retrospectively would be subject to any interest which has vested, as well as prior judicial decisions and acts taken in reliance on the Rule (e.g., a property purchase on the basis of a solicitor’s opinion that a remote interest in the property was void under the Rule), prior to the effective date of the abolishing legislation.