Thursday, July 22, 2010

Law Reform Commission of Nova Scotia Paper on Rule Against Perpetuities

The Law Reform Commission of Nova Scotia has published a discussion paper on The Rule Against Perpetuities:
"The rule against perpetuities is a legal rule which limits the duration of certain restrictions on the transfer of property. By various means of estate planning - particularly trusts - and other forms of property disposition, a settlor or testator or grantor may postpone the time when property may be possessed and used freely by a beneficiary or grantee. The Rule insists that such inheritances - and indeed, many other sorts of postponed, restricted or contingent transfers of property - can only be postponed for so long. At some definite point the property must be fully transferred to its beneficial owner, free of restrictions. A transfer of property subject to a delay, restriction or contingency that might result in the full transfer occurring later than the allowable perpetuities period is void from the beginning. The postponed, restricted or contingent transfer simply fails at the outset, and the property will be received by someone other than the intended recipient, as though the offending transfer had not been made at all."

"The common law rule against perpetuities is to the effect that no legal interest in property is valid unless it is certain, at the time when the disposition (e.g., a trust) takes effect, that the interest must vest within a life or lives in being plus twenty-one years. In other words, property may not be tied up in trust, subject to restricted use, or otherwise held subject to any contingency, for longer than twenty-one years after the death of a person who is alive at the time of the disposition and identifiable by the terms of the instrument of disposition. If there is no such identifiable life or lives in being, the period is twenty-one years from the disposition."

"The common complaint is that the rule is simply too complex and abstract in its application, resulting in a substantial risk that beneficiaries or grantees will be deprived of their interests through inadvertent errors in drafting. In the estate planning context, a great number of vesting conditions may offend the Rule, most often unintentionally, and often only hypothetically in any event. The consequence of a breach is very real, however; the intended gift or disposition will generally be entirely invalid. The property interest meant to be held in trust will instead fall into the residue of an estate, or be subject to intestacy. In the non-trust context the interest meant to be held on condition will simply be void. The property will be
distributed differently than the testator or grantor intended, and in many cases the intended beneficiary or grantee will be deprived of property he or she was meant to receive."
The paper looks at the reforms adopted in England, Ireland, Scotland, Australia as well as in other Canadian jurisdictions.

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posted by Michel-Adrien at 7:10 pm


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