When you create a trust, especially one that involves long-term property management or multi-generational wealth transfer, you may encounter a term called the rule against perpetuities. Generally, it aims to prevent people from tying up property indefinitely by requiring you to settle ownership within a specific timeframe. Most states have their own version of this rule. In New York, the rule of perpetuities has two main components.
Suspension of alienation
The rule of perpetuities prevents a person from restricting the sale or transfer of property for too long. This can happen when they create a trust without a power of sale or when they prohibit beneficiaries from transferring their interests. For example, a trust provision stating that a beneficiary can’t sell the property for 100 years may violate this rule because it extends beyond the allowed time frame.
According to New York law, you must limit this period to “lives in being at the creation of the estate and a term of not more than twenty-one years.” In simple terms, you must make the property transferable within the lifetime of someone alive when you created the trust, plus an additional 21 years.
Vesting of interests
New York law states that when you create any interest in property through a trust or will, that interest must become certain (or “vest”) within a specific timeframe. This means that the ownership or right to the property must be clearly established and fixed within the allowed period.
This timeframe is no later than 21 years after the death of one or more people who were alive when you created the trust or will. This includes any period of gestation for a child conceived before but born after you created the estate.
For example, a provision in a trust stating that a property should go to the first descendant to become a doctor might violate this rule. This is because you can’t be certain when or if this will happen within the allowed time.
Protect your intentions for future generations
The rule against perpetuities is a complicated concept. To make sure that that your trust complies with New York law while still achieving your estate planning goals, working with an attorney is crucial.