What is the Rule Against Perpetuities?

The Rule Against Perpetuities routinely stumps law students and lawyers, and can turn home-made documents into disasters. A deed, trust Will, or other document that violates the Rule Against Perpetuities may be invalid in part or in whole, causing anticipated distributions to be uncertain or preventing them from happening at all. See Wikipedia: Rule Against Perpetuities. Also, Law School Insights, The Rule Against Perpetuities (Thomson Reuters). An article on the Harvard Law School website says “The first case in which the Rule was announced is generally thought to be the Duke of Norfolk’s Case, 3 Ch. Cas. 1, 22 Eng. Rep. 931 (1682).” In other words, it’s an old rule. Because Georgia’s common law originates from English law, it made it’s way into our legal jurisprudence. The common law rule was that an interest in property must vest not later than during the lifetime of someone living when the interest was created, plus 21 years. As shown below, Georgia has extended that period to 360 years, primarily to allow for extended trust planning (dynasty trusts).

The purpose for the rule in Georgia was explained in Shiver v. Benton, 251 Ga. 284 (1983). The Court said: “The rule is codified in O.C.G.A. § 44-6-1 (Code Ann. § 85-707). The rule places time limits on the vesting of future interests; it also seeks to protect the free alienability of property, although the restraint may be more indirect than a pure restraint on alienation which is against public policy even if confined in time. In Cook v. Horn, 214 Ga. 289, 293 (104 SE2d 461) (1958), this court stated a purpose of the rule “is to prevent the tying up of property for an unreasonable length of time and to prohibit unreasonable restraint upon the alienation of property.” Although the rule is stated solely in length of time there are numerous underlying purposes. These include “the utilization of wealth, the development of land by its current beneficial owners, and the assurance that society will be controlled by the living rather than from the grave.” St. Regis Paper Co. v. Brown, 247 Ga. 361, 362 (276 SE2d 24) (1981).”

O.C.G.A. § 44-6-200 through § 44-6-206 is Georgia’s “Uniform Statutory Rule Against Perpetuities.”

Currently, a non-vested interest in property, including interests in trusts, must vest within 360 years. Specifically, O.C.G.A. § 44-6-201 provides:

(a) A nonvested property interest is invalid unless:

(1) When the interest is created, it is certain either to vest or to terminate within the lifetime of an individual then alive or within 21 years after the death of that individual; or
(2) The interest either vests or terminates within 360 years after its creation.

(b) A general power of appointment not presently exercisable because of a condition precedent is invalid unless:

(1) When the power is created, the condition precedent is certain either to be satisfied or to become impossible to satisfy within the lifetime of an individual then alive or within 21 years after the death of that individual; or
(2) The condition precedent either is satisfied or becomes impossible to satisfy within 360 years after its creation.

(1) When the power is created, it is certain to be irrevocably exercised or otherwise to terminate within the lifetime of an individual then alive or within 21 years after the death of that individual; or
(2) The power is irrevocably exercised or otherwise terminates within 360 years after its creation.

(d) In determining whether a nonvested property interest or a power of appointment is valid under paragraph (1) of subsection (a), paragraph (1) of subsection (b), or paragraph (1) of subsection (c) of this Code section, the possibility that a child will be born to an individual after the individual’s death is disregarded.

O.C.G.A. § 44-6-202 tells us when the non-vested interest is created:

(a) Except as provided in subsections (b) and (c) of this Code section and in subsection (a) of Code Section 44-6-205, the time of creation of a nonvested property interest or a power of appointment is determined under general principles of property law.
(b) For purposes of this article, if there is a person who alone can exercise a power created by a governing instrument to become the unqualified beneficial owner of:

(1) A nonvested property interest; or
(2) A property interest subject to a power of appointment described in subsection (b) or (c) of Code Section 44-6-201,
the nonvested property interest or power of appointment is created when the power to become the unqualified beneficial owner terminates.

(c) For purposes of this article, a nonvested property interest or a power of appointment arising from a transfer of property to a previously funded trust or other existing property arrangement is created when the nonvested property interest or power of appointment in the original contribution was created.

O.C.G.A. § 44-6-203 allows a Court to reform a disposition to that it approximates the transferor’s plan:

Upon the petition of an interested person, a court shall reform a disposition in the manner that most closely approximates the transferor’s manifested plan of distribution and is within the number of years allowed by paragraph (2) of subsection (a), (b), or (c) of Code Section 44-6-201 if:

(1) A nonvested property interest or a power of appointment becomes invalid under Code Section 44-6-201;
(2) A class gift is not but might still become invalid under Code Section 44-6-201 and the time has arrived when the share of any class member is to take effect in possession or enjoyment; or
(3) A nonvested property interest that is not validated by paragraph (1) of subsection (a) of Code Section 44-6-201 can vest, but not within 360 years after its creation.

O.C.G.A. § 44-6-204 lists exceptions to the rule:

Code Section 44-6-201 shall not apply to:
(1) A nonvested property interest or a power of appointment arising out of a nondonative transfer, except a nonvested property interest or a power of appointment arising out of:

(A) A premarital or postmarital agreement;
(B) A separation or divorce settlement;
(C) A spouse’s election;
(D) A similar arrangement arising out of a prospective, existing, or previous marital relationship between the parties;
(E) A contract to make or not to revoke a will or trust;
(F) A contract to exercise or not to exercise a power of appointment;
(G) A transfer in satisfaction of a duty of support; or
(H) A reciprocal transfer;

(2) A fiduciary’s power relating to the administration or management of assets, including the power of a fiduciary to sell, lease, or mortgage property, and the power of a fiduciary to determine principal and income;
(3) A power to appoint a fiduciary;
(4) A discretionary power of a trustee to distribute principal before termination of a trust to a beneficiary having an indefeasibly vested interest in the income and principal. Nothing contained in paragraphs (2) and (3) of this Code section and this paragraph shall be construed to permit the fiduciary to continue the administration or management of assets once the nonvested property interest becomes invalid as described in subsection (a) of Code Section 44-6-201;
(5) A nonvested property interest held by a charity, government, or governmental agency or subdivision, if the nonvested property interest is preceded by an interest held by another charity, government, or governmental agency or subdivision;
(6) A nonvested property interest in or a power of appointment with respect to a trust or other property arrangement forming part of a pension, profit-sharing, stock bonus, health, disability, death benefit, income deferral, or other current or deferred benefit plan for one or more employees, independent contractors, or their beneficiaries or spouses, to which contributions are made for the purpose of distributing to or for the benefit of the participants or their beneficiaries or spouses the property, income, or principal in the trust or other property arrangement, except a nonvested property interest or a power of appointment that is created by an election of a participant or a beneficiary or spouse; or
(7) A property interest, power of appointment, or arrangement that was not subject to the common-law rule against perpetuities or is excluded by another statute of this state.

O.C.G.A. § 44-6-205 provides that the current rule became effective on July 1, 2018; also, Courts may reform invalid dispositions made prior to July 1, 2018:

(a) Except as extended by subsection (b) of this Code section, this article applies to a nonvested property interest or a power of appointment that is created on or after July 1, 2018. For purposes of this Code section only, a nonvested property interest or a power of appointment created by the exercise of a power of appointment is created when the power is irrevocably exercised or when a revocable exercise becomes irrevocable.
(b) With respect to a nonvested property interest or a power of appointment that was created before July 1, 2018, and that violates this state’s rule against perpetuities as that rule existed before July 1, 2018, a court upon the petition of an interested party may exercise its equitable power to reform the disposition in the manner that most closely approximates the transferor’s manifested plan of distribution and is within the limits of the rule against perpetuities applicable when the nonvested property interest or power of appointment was created.

O.C.G.A. § 44-6-206 provides that the rule should be interpreted consistent with the uniform rule in other states:

This article shall be applied and construed to effectuate its general purpose to make uniform the law with respect to the subject of this article among states enacting it.