Friday, July 14, 2006

Ding Dong - RAP (Rule Against Perpetuities) is Dead in PA

Category: Estate Planning

This post will likely be of most interest to the lawyer readers - who recall with dread the interaction of the Socratic method and the Rule Against Perpetuities or RAP from law school.

In essence, the Rule Against Perpetuities (RAP) states that no trust can last longer than (1) the lives of all the then living beneficiaries at the date of the grantor's death (ie: the children and grandchildren and great-grandchildren living when the person who created the trust dies), plus (2) 21 years from the death of the last person identified in #1.

This creates a problem for estate planners, as many times a person's goal is to create a "dynasty trust", where the seed money for the trust can be used to benefit multiple generations indefinitely. The Rule Against Perpetuities can also have some unintended consequences of the timing of trust distributions. For estate planners and law students alike, the Death of RAP (Rule Against Perpetuities) is a good thing.

There has been a trend among the states to abolish RAP, as it is a carryover from old medieval English Law, where feudal lords and a serf system ruled the day. New Jersey abolished its RAP provision in 1997 (so long as you elect out of RAP in the trust document) and other states have moved so as a way to increase the trust business in those states (Delaware and Alaska come to mind).

Now, according to the PropertyProf Blog, PA is joining the trend.

Pennsylvania Abolishes Rule Against Perpetuities

Last week, Pennsylvania enacted legislation that among other things abolishes the rule against perpetuities for interests created after December 31, 2006 (the link is to the Senate bill; the Governor approved the bill on July 7).

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