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All trusts have a life span. Most states use a rule descended from feudal England which requires that all interests must vest no later than 21 years after the end of a life (or lives) in being at the creation of the trust. This is the common law rule against perpetuities.

This rule has perplexed generations of law students because it’s difficult to interpret and apply. More seriously, though, this rule can result in the termination of a trust—even one for a grantor’s grandchildren under certain circumstances—before the grantor originally intended.

For example, Mr. Jones sets up an irrevocable trust to pay income to his grandchildren who shall reach the age of twenty-one. He has two grandchildren. His wife dies and he remarries. More grandchildren are born. He and his second wife have a child. Years pass and his youngest child has children. Under the rule, the trust would terminate twenty-one years after the death of the youngest child living when the trust was created. The grandchildren who are children of the child born after the trust was created will get nothing from the trust.

To simplify the rules concerning the duration of a trust, Delaware repealed its common law rule against perpetuities in 1986 and replaced it with a simple 110-year limitation. Thus, a trust could last 110 years even if its terms violated the common law rule against perpetuities. In 1995, Delaware further liberalized its laws by abolishing the 110-year limitation for all trust property except real estate.1 Therefore, under the new legislation, a trust holding personal property such as stocks and bonds can last indefinitely while real estate can be held in trust for at least 110-years before it has to be distributed.

The Delaware rule against perpetuities (now applicable only to real estate) has another unusual aspect. In most states the exercise of a limited power of appointment will not affect the rule limiting the duration of the trust.2 Delaware provides that a new 110-year period begins each time a limited power is exercised.

In essence, by exercising a series of limited powers, a Delaware Trust may be continued indefinitely. This permits a trust to retain financial control longer than trusts established in other states.3

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Footnotes

  1. 25 Del.C. §503.
  2. See, generally, Restatement of Property, §§390-392 (1944). Also see, Mondell v. Thom, 1944, 143 F.2d 157, 79 U.S. App. D.C. 145 (District of Columbia); Northern Trust Co. v. Porter, 1938, 13 N.E. 2d 487, 368 Ill. 256 (Michigan).
  3. Delaware is unique among the states in allowing a trust to continue for generations by the exercise of a power of appointment. In addition, Delaware has no rule limiting the period during which a trust may accumulate income, as in other states where accumulations are limited to the period of the rule against perpetuities. Therefore, income may be accumulated in Delaware for generations, if desired.