Rule Against Perpetuities

Can I first just say, “WHEW!”  I am glad I am not still in law school.  The Rule Against Perpetuities was one of those subjects the law school professor loved to “hide the ball” with us on.  That is to say, confuse us to the point our heads hurt.  The rule Against Perpetuities is a legal rule in the Anglo-American common law that prevents people from using legal instruments (usually a deed, trust or a will) to exert control over the ownership of private property for a time long beyond the lives of people living at the time the instrument was written.

The Texas Constitution Article I, §26 adopts the common law version of the Rule Against Perpetuities.  In 2021, the Texas Legislature made extensive revisions to Texas Property Code §112.036 that may extend the time period to 300 years from the effective date of a trust.  This was done to permit the creation of dynasty trusts in Texas.  Previously, the rule had stated property must transfer or vest within 21 years after some life in being at the time the interest was created, plus a period of gestation. 

The effective date of a trust is the date it becomes irrevocable, meaning the date the person setting up the trust dies or declares the trust is irrevocable.  This date is important because it is the date the interest in property is created and the time period subject to the Rule Against Perpetuities begins.  Thus, if grandfather’s trust states the property is to not be sold, but held in trust for grandson during grandson’s life, the maximum duration of the trust was the grandson’s life, plus 21 years.  If grandson had not been born, but was in gestation, then the period could be the grandson’s life, plus 21 years and an additional 9 months (gestation).  Now if that isn’t a complicated enough set of terms, imagine that the Texas Property Code now says that period maybe 300 years.  Article I, §26 of the Texas Constitution hasn’t changed.  So, the time period might be 300 years or the person’s lifetime plus 21 years.  

Head swimming yet?

Dynasty trust isan irrevocable trust that lets people keep wealth in the family for multiple generations.  Families can reduce the tax burden on successive generations of beneficiaries.  Now mind you, the current estate tax exempts the first 22 million dollars of a couple’s assets from estate tax.  So unless you are a professional sports athlete, politician or super rich, then this may not be an issue. 

It will be interesting to watch the legal battles over the issue of the Rule Against Perpetuities versus the Texas Property Code, but lawyers have certainly found a way to insure they will have work.  Not only will they have work, they will certainly be able to charge a high fee to their super rich clients. 

If you are thinking of leaving property to your family and want to protect the value of that property from taxation or make it a simple process to transfer those assets, you should seek the assistance of an attorney with experience in estate planning.  A little spent now, will save money and headaches for your family later.  If you are a professional athlete, politician or super rich, I would be glad to set up a retainer.  

Sam A. Moak is an attorney with the Huntsville law firm of Moak & Moak, P.C.  He is licensed to practice in all fields of law by the Supreme Court of Texas, is a Member of the State Bar College, and is a member of the Real Estate, Probate and Trust Law Section of the State Bar of Texas.  www.moakandmoak.com

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