Rule Against Perpetuities: What Happens After 21 Years When The Trust Vests

Rule Against Perpetuities: What Happens After 21 Years When The Trust Vests

So as not to violate the rule against perpetuities a trust must vest within 21 years after the lifetimes of those living at the time of creation of the interest. In other words, a trust must close 21 years after the last named beneficiary who was alive at the time of the trust's creation - dies. The trust can either vest into another trust (to prolong its life if instructed to do so) OR divest to its beneficiaries. When divesting to beneficiaries, probate court is not required and thus one is able to avoid all probate fees and taxes. However, income taxes are left up to each individual beneficiary.

Unlike with private trusts, the common law rule against perpetuities does not apply to the duration of charitable trusts. Rather, charitable trusts can continue perpetually. The restriction on shifting does not apply for a vested interest that shifts from one charity to another charity. However, a shift in purpose from charitable to private that may vest beyond this period is invalid, as that is a private interest, not a charitable interest.

EXAMPLE: ABC Trust is established on 01/01/2000 with John Doe, a newborn (thus alive at the trust's creation date), listed as a sole beneficiary. John Doe lives to be exactly 100 years old. The trust now must vest within 21 years after this death - thus the trust will come to a close before 01/01/2121.

EXAMPLE 2: ABC Trust is established on 01/01/2000 with John Doe and Mary Doe, both newborns (thus alive at the trust's creation date), listed as a beneficiaries. Mary Doe pass shortly thereafter, being exactly 20 years old. The trust may still exist until the last named beneficiary who was alive at the trust's creation, John Doe, passes at 100. Upon John Doe's passing the trust must vest within 21 years - thus the trust will come to a close before 01/01/2121.