Tuesday, March 31, 2015


Subpart 1 of this part incorporates into the Code the Uniform Statutory Rule Against Perpetuities (USRAP or Uniform Statutory Rule) and Subpart 2 contains an optional section on honorary trusts and trusts for pets. Subpart 2 is under continuing review and, after appropriate study, might subsequently be revised to add provisions affecting certain types of commercial
transactions respecting land, such as options in gross, that directly or indirectly restrain alienability.
In codifying Subparts 1 and 2, enacting states may deem it appropriate to locate them at some place other than in the probate code.
Subpart 1. Uniform Statutory Rule Against Perpetuities (1986/1990) GENERAL COMMENT
Simplified Wait-and-See/Deferred-Reformation Approach Adopted. The Uniform Statutory Rule reforms the common-law Rule Against Perpetuities (common-law Rule) by adding a simplified wait-and-see element and a deferred-reformation element.
Wait-and-see is a two-step strategy. Step One (Section 2-901(a)(1)) preserves the validating side of the common-law Rule. By satisfying the common-law Rule, a nonvested future interest in property is valid at the moment of its creation. Step Two (Section 2-901(a)(2)) is a salvage strategy for future interests that would have been invalid at common law. Rather than invalidating such interests at creation, wait-and-see allows a period of time, called the permissible vesting period, during which the nonvested interests are permitted to vest according to the trust’s terms.
The traditional method of measuring the permissible vesting period has been by reference to lives in being at the creation of the interest (the measuring lives) plus 21 years. There are, however, various difficulties and costs associated with identifying and tracing a set of actual measuring lives to see which one is the survivor and when he or she dies. In addition, it has been documented that the use of actual measuring lives plus 21 years does not produce a period of time that self-adjusts to each disposition, extending dead-hand control no further than necessary in each case; rather, the use of actual measuring lives (plus 21 years) generates a permissible vesting period whose length almost always exceeds by some arbitrary margin the point of actual vesting in cases traditionally validated by the wait-and-see strategy. The actual-measuring-lives approach, therefore, performs a margin-of-safety function. Given this fact, and given the costs and difficulties associated with the actual-measuring-lives approach, the Uniform Statutory Rule forgoes the use of actual measuring lives and uses instead a permissible vesting period of a flat 90 years.
The philosophy behind the 90-year period is to fix a period of time that approximates the average period of time that would traditionally be allowed by the wait-and-see doctrine. The flat-period-of-years method was not used as a means of increasing permissible dead-hand control by lengthening the permissible vesting period beyond its traditional boundaries. In fact, the 90- year period falls substantially short of the absolute maximum period of time that could theoretically be achieved under the common-law Rule itself, by the so-called “twelve-healthy-
babies ploy” – a ploy that would average out to a period of about 115 years1, 25 years or 27.8% longer than the 90 years allowed by USRAP. The fact that the traditional period roughly averages out to a longish-sounding 90 years is a reflection of a quite different phenomenon: the dramatic increase in longevity that society as a whole has experienced in the course of the twentieth century.
The framers of the Uniform Statutory Rule derived the 90-year period as follows. The first point recognized was that if actual measuring lives were to have been used, the length of the permissible vesting period would, in the normal course of events, be governed by the life of the youngest measuring life. The second point recognized was that no matter what method is used to identify the measuring lives, the youngest measuring life, in standard trusts, is likely to be the transferor’s youngest descendant living when the trust was created.2 The 90-year period was premised on these propositions. Using four hypothetical families deemed to be representative of actual families, the framers of the Uniform Statutory Rule determined that, on average, the transferor’s youngest descendant in being at the transferor’s death – assuming the transferor’s death to occur between ages 60 and 90, which is when 73 percent of the population die – is about 6 years old. See Waggoner, “Perpetuities: A Progress Report on the Draft Uniform Statutory Rule Against Perpetuities,” 20 U. Miami Inst. on Est. Plan. Ch. 7 at 7-17 (1986). The remaining life expectancy of a 6-year-old is about 69 years. The 69 years, plus the 21-year tack-on period, gives a permissible vesting period of 90 years.
Acceptance of the 90-year-period Approach under the Federal Generation-skipping Transfer Tax. Federal regulations, to be promulgated by the U.S. Treasury Department under the generation-skipping transfer tax, will accept the Uniform Statutory Rule’s 90-year period as a valid approximation of the period that, on average, would be produced by lives in being plus 21 years. See Temp. Treas. Reg. § 26.2601-1(b)(1)(v)(B)(2) (as to be revised). When originally promulgated in 1988, this regulation was prepared without knowledge of the Uniform Statutory Rule Against Perpetuities, which had been promulgated in 1986; as first promulgated, the regulation only recognized a period measured by actual lives in being plus 21 years. After the 90-year approach of the Uniform Statutory Rule was brought to the attention of the U.S. Treasury Department, the Department issued a letter of intent to amend the regulation to treat the 90-year period as the equivalent of a lives-in-being-plus-21-years period. Letter from Michael J. Graetz, Deputy Assistant Secretary of the Treasury (Tax Policy), to Lawrence J. Bugge, President, National Conference of Commissioners on Uniform State Laws (Nov. 16, 1990). For further discussion of the coordination of the federal generation-skipping transfer tax with the Uniform Statutory Rule, see the Comment to Section 2-901(e), infra, and the Comment to
1 Actuarially, the life expectancy of the longest living member of a group of twelve new-born babies is about 94 years; with the 21-year tack-on period, the “twelve-healthy-babies ploy” would produce, on average, a period of about 115 years (94 + 21).
2 Under Section 2-707, the descendants of a beneficiary of a future interest are presumptively made substitute beneficiaries, almost certainly making those descendants in being at the creation of the interest measuring lives, were measuring lives to have been used.
Section 1(e) of the Uniform Statutory Rule Against Perpetuities.
The 90-year Period Will Seldom be Used Up. Nearly all trusts (or other property arrangements) will terminate by their own terms long before the 90-year permissible vesting period expires, leaving the permissible vesting period to extend unused (and ignored) into the future long after the contingencies have been resolved and the property distributed. In the unlikely event that the contingencies have not been resolved by the expiration of the permissible vesting period, Section 2-903 requires the disposition to be reformed by the court so that all contingencies are resolved within the permissible period.
In effect, wait-and-see with deferred reformation operates similarly to a traditional perpetuity saving clause, which grants a margin-of-safety period measured by the lives of the transferor’s descendants in being at the creation of the trust or other property arrangement (plus 21 years).
No New Learning Required. The Uniform Statutory Rule does not require the practicing bar to learn a new and unfamiliar set of perpetuity principles. The effect of the Uniform Statutory Rule on the planning and drafting of documents for clients should be distinguished from the effect on the resolution of actual or potential perpetuity-violation cases. The former affects many more practicing lawyers than the latter.
With respect to the planning and drafting end of the practice, the Uniform Statutory Rule requires no modification of current practice and no new learning. Lawyers can and should continue to use the same traditional perpetuity-saving/termination clause, using specified lives in being plus 21 years, they used before enactment. Lawyers should not shift to a “later of” type clause that purports to operate upon the later of (A) 21 years after the death of the survivor of specified lives in being or (B) 90 years. As explained in more detail in the Comment to Section 2-901, such a clause is not effective. If such a “later of” clause is used in a trust that contains a violation of the common-law rule against perpetuities, Section 2-901(a), by itself, would render the clause ineffective, limit the maximum permissible vesting period to 90 years, and render the trust vulnerable to a reformation suit under Section 2-903. Section 2-901(e), however, saves documents using this type of clause from this fate. By limiting the effect of such clauses to the 21-year period following the death of the survivor of the specified lives, subsection (e) in effect transforms this type of clause into a traditional perpetuity-saving/termination clause, bringing the trust into compliance with the common-law rule against perpetuities and rendering it invulnerable to a reformation suit under Section 2-903.
Far fewer in number are those lawyers (and judges) who have an actual or potential perpetuity-violation case. An actual or potential perpetuity-violation case will arise very infrequently under the Uniform Statutory Rule. When such a case does arise, however, lawyers (or judges) involved in the case will find considerable guidance for its resolution in the detailed analysis contained in the commentary accompanying the Uniform Statutory Rule itself. In short, the detailed analysis in the commentary accompanying the Uniform Statutory Rule need not be part of the general learning required of lawyers in the drafting and planning of dispositive documents for their clients. The detailed analysis is supplied in the commentary for the assistance in the resolution of an actual violation. Only then need that detailed analysis be

consulted and, in such a case, it will prove extremely helpful.
General References. Fellows, “Testing Perpetuity Reforms: A Study of Perpetuity Cases 1984-89,” 25 Real Prop. Prob. & Tr. J. 597 (1991) (testing the various types of perpetuity reform measures and concluding, on the basis of empirical evidence, that the Uniform Statutory Rule is the best opportunity offered to date for a uniform perpetuity law that efficiently and effectively achieves a fair balance between present and future property owners); Waggoner, “The Uniform Statutory Rule Against Perpetuities: Oregon Joins Up,” 26 Willamette L. Rev. 259 (1990) (explaining the operation of the Uniform Statutory Rule); Waggoner, “The Uniform Statutory Rule Against Perpetuities: The Rationale of the 90-Year Waiting Period,” 73 Cornell L. Rev. 157 (1988) (explaining the derivation of the 90-year period; Waggoner, “The Uniform Statutory Rule Against Perpetuities,” 21 Real Prop., Prob. & Tr. J. 569 (1986) (explaining the theory and operation of the Uniform Statutory Rule). 

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