Underwriting Manual: Rule Against Perpetuities

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Standard Exceptions



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Underwriting Manual Subtopic

In General

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The object of the "rule against perpetuities" is to require the vesting of future estates within a limited period of time after their creation and to bar the creation of future interests depending on remote contingencies.

Generally stated, the rule allows the postponement of the vesting of an estate or interest in land for the period of lives in being or in the phase of gestation plus twenty-one years. No interest subject to a condition precedent is good unless the estate or interest is certain to vest, if at all, within twenty-one years, plus a period of gestation, after some life in being at the time of the creation of the interest. When the vesting of a gift is not limited upon the life of a person, the term cannot be longer than twenty-one years, computed from the time of the creation of the future estate or interest. The rule against perpetuities is a common product, except as modified by statute.

In some states, perpetuities are also forbidden either by their constitutions or statutes.

Underwriting Manual Subtopic

Interest And Property Subject To The Rule Of Perpetuities

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The rule against perpetuities applies only to future contingent estates and is inapplicable to estates already vested. Hence, the rule does not affect vested remainders or reversions. It may also be noted that it the provisions of a will create a mere charge instead of a devise upon a condition precedent, the estate is vested and not contingent and, thus, is not affected by the rule against perpetuities.

The rule against perpetuities applies only in those cases where, by the terms of an instrument purporting to create an estate, the vesting of the estate is to be, or may be postponed beyond the period of a life or lives in being and 21 years thereafter.

Though local statutes may establish some additional applications or limitations, by definition the rule applies to:

  • Future contingent interests.
  • Executory limitations in the nature of executory devises and springing and shifting uses.
  • Leases
  • Options
  • Trusts
  • Leases
  • Pre-emptive Rights
  • Powers of appointment

The rule against perpetuities does not apply to "charitable trusts."

Whenever a transaction to be insured shows the interest in the real estate being transferred as vesting more than 21 years from the date of the execution of the instrument, it becomes necessary to consider the possible application of the rule.