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CED: An Overview of the law —Perpetuities and accumulations

Perpetuities and Accumulations

 

I-II.1-3: Introduction; The Rule Against Perpetuities

By: Elizabeth Portman

 

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I: Introduction

See Canadian Abridgment: EST.IX.3.a Estates and trusts | Perpetuities and accumulations | Accumulations | General principles

 

The rule against perpetuities places a limit upon the powers of property owners to designate who may enjoy the beneficial ownership in the future. It does not seek directly to prevent restraints on alienation, and it is not guided in its application by the fact of whether the fee is alienable or inalienable. It merely seeks to stop the creation of future interests which may take effect at too remote a time in the future.1

 

A general prohibition of alienation attached to a devise in fee of lands, which prohibition would, if unlimited, be invalid at common law, is not made valid by being limited as to time.2 But a restriction on alienation prohibiting it to a particular class of individuals is good.3

 

II.1.(a): Definitions at Common Law

See Canadian Abridgment: EST.IX.1.a Estates and trusts | Perpetuities and accumulations | Rule against perpetuities | Statement of rule

 

The common law rule against perpetuities requires that every estate or interest must vest, if at all, not later than 21 years after the determination of some life in being at the time of the creation of such estate or interest that limits or is a relevant factor in limiting the period within which the estate or interest will vest.1

 

Not only must the person to take be ascertained, but the amount of his or her interest must be ascertainable within the prescribed period.2

 

The rule against perpetuities deals not with the duration of interests, but with the commencement of them.3

 

The rule may be alternatively stated thus: A grant or other limitation of any estate or interest to take effect in possession or enjoyment at a future time and which is not, from the time of its creation, a vested estate or interest will be void ab initio if at the time the limitation takes effect there is a possibility that the estate or interest limited will not vest within the period of a life or lives then in being or within a further period of 21 years thereafter.4

 

The fact that a gift of a corpus is bad because it violates the rule against perpetuities does not render a gift of the income invalid.5

 

Every executory estate which might in any event transgress the time limit will be void from its commencement. When a gift is infected with the vice of possibly exceeding the prescribed limit, it is unenforceable both at law and in equity. Even if in its actual event it falls greatly within such limit, it is still as absolutely void as if the event had occurred which would have taken it beyond the boundary.6

 

All of the interests given must be capable of vesting within the period limited by the rule after the creation of the interests; if it is possible for an interest to vest thereafter, then the rule is infringed. Subsequent events cannot make such a gift valid.7

 

The time for determining the period beyond which a bequest is void for remoteness as offending against the rule as to perpetuities is the date of creation of the interest. Where creation is by will, this will be the date of death of the testator. All interests given must be capable of vesting within the period limited by the rule, after the date of creation.8

 

The limit beyond lives in being is a term in gross of 21 years and the period of gestation where gestation exists.9

 

A person conceived but not born at the time the interest is created is considered, for purposes of the rule, to be in existence at that time.10

 

There may be more than one period of gestation included in the perpetuity period, such as the period of gestation of a living person and that of his or her offspring who is to reach age 21.11

 

At common law, no person is regarded as incapable of producing children by natural means.12

 

II.1.(b): Definitions Under Perpetuities Legislation

See Canadian Abridgment: EST.IX.1.a Estates and trusts | Perpetuities and accumulations | Rule against perpetuities | Statement of rule

 

In Alberta, British Columbia and Ontario, legislation abolishes the requirement that every estate or interest must necessarily vest within the perpetuity period. An estate or interest created after a legislated date1 does not infringe the rule automatically where it is capable of vesting outside the period. Instead, it is presumed to be valid until actual events establish that it will not vest within the period.2 This change reflects the adoption of what is commonly referred to as the"wait and see" rule.

 

The various Acts respectively provide that any disposition or limitation which if standing alone would be valid with respect to the rule against perpetuities is not invalidated by the rule if it is preceded by one or more dispositions or limitations that are void ab initio for violating the rule.3 Such valid subsequent disposition or limitation may not be prevented from being accelerated by reason only of the invalidity of the prior estates.4

 

            The additional term of 21 years may or may not be independent of the minority of any person to be entitled, and if no lives are fixed upon, then the term of 21 years only is allowed in Alberta and Ontario5 and the term of 80 years is allowed in British Columbia.6

 

            A life in being is a life which limits, or is a relevant factor in limiting, the time of vesting.7The words "in being" mean living or conceived but unborn.8

 

            Where the gift is to a class, a relevant life in being for any member of the class is a life in being for the entire class,9 but the lives of persons falling within a class may be disregarded if the number of persons is such as to render it impractical to ascertain the date of the survivor's death.10

 

            The legislation has eliminated some of the uncertainty involved in determining such questions as whether or not a person is a relevant life in being and the number of members in a class in which an interest may vest, by introducing certain presumptions of fertility and infertility.11 It is to be presumed that a male is able to have a child at age 14 or over but not under that age12 and that a female is able to have a child at age 12 or over but not under that age or over age 55.13 These presumptions may be rebutted by the production of evidence to the contrary if the person in question is alive when the question arises.14 The conclusion so reached is not subject to question at a later date merely because the evidence is later proved to be wrong.15

            The court has the authority to make orders that will protect the rights of children born to persons who, at a particular time and in the deciding of a particular question, were treated as unable to have children. The court may make orders to protect the rights that such child or children would have had in the property concerned as if the question of infertility had not been decided.16

 

            The possibility that a person may have a child at any time by adoption or legitimation is not considered in deciding any question that turns on the fertility of the person. However, if a person does have a child or children by those means, the court may make an order to protect the rights of those children.17

 

            At common law, an interest that is contingent upon a person reaching an age greater than 21 might be capable in some cases of vesting outside the perpetuity period and would thus be void. Under the legislation, if the interest would have vested within the perpetuity period had the specified age been lower, then that specified age will be read as if it were low enough to allow the interest to vest within the period.18 In Alberta and British Columbia, one age reduction to embrace all potential beneficiaries is to be made.19

 

            At common law, a life in being must be alive at the date of creation of the interest. The Acts deal with the situation of the "unborn spouse" by providing that where an interest is created in the spouse of a person living at the beginning of the period, the spouse is treated as a life in being, regardless of the actual date of birth.20

 

            In Manitoba the rule against perpetuities has been abolished.21Successive legal interests, whether valid or invalid at common law or as executory interests, take effect in equity behind a trust, except that any successive legal interest which would not be valid as an equitable interest behind a trust is invalid for all purposes.22

II.2: Origin of Rule

See Canadian Abridgment: EST.IX.1.a Estates and trusts — Perpetuities and accumulations — Rule against perpetuities — Statement of rule

 

            The necessity for such a rule became apparent as soon as executory limitations were permitted, but no definite period appears at first to have been fixed upon; the courts were content for a while with defeating various attempts to create perpetuities. Eventually, a settled rule was laid down. This rule is founded upon an analogy to the rule of law relating to remainders, which forbids the gift of land to an unborn person for life followed by an estate to the issue of such unborn person. Under this rule, there can be no greater restraint on alienation than that which may be effected by means of a settlement limiting one or more life estates to a person or persons in being, followed by one or more estates tail expectant on the determination of the preceding estate for life. Since the estate tail can be barred by the tenant in tail as soon as he has attained his majority, the utmost restraint on alienation possible by limitation of remainders is for a life or lives in being and 21 years afterward. The full extent of this period as that within which property might be rendered incapable of alienation was, in the case of executory limitations, at first allowed only where the limitation was to take effect in favour of an infant. This was afterwards extended to all cases, and it is now clearly settled that at common law every executory limitation is well created if it must either take effect or fail to take effect within the period of a life or lives in being, plus the periods of gestation where gestation exists, plus 21 years.1

 

II.3: Object of Rule

See Canadian Abridgment: EST.IX.1.a Estates and trusts | Perpetuities and accumulations | Rule against perpetuities | Statement of rule

 

            The object of the rule is to restrict the inalienability of property and limit the period for which its absolute vesting may be postponed. If the property vests within the period fixed by law, it is immaterial that the actual enjoyment in possession may be deferred for a much longer period.1

 

            Under the Ontario Act, the perpetuity period for easements, profits à prendre or other, similar interests is 40 years from the time of creation of the interests, with the validity or invalidity of the interest being determined by actual events within the 40-year period.2

 

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