Charitable Trusts and the Rule Against Perpetuities

This rule often cannot invalidate these trusts.

Church Law and Tax 1993-05-01 Recent Developments

Wills, Trusts, and Estates

Key point: In many states, charitable trusts cannot be invalidated on the basis of the “rule against perpetuities.”

A federal appeals court refused to invalidate a charitable trust that violated the rule against perpetuities. Most persons are not aware that trusts can be invalidated if they continue too long. The so-called “rule against perpetuities” renders such trusts legally invalid. Fortunately, there are some exceptions to this rule, as this case illustrates. A husband and wife established a trust for the benefit of charitable causes. The trust specified that it was to continue indefinitely following the death of the couple. The couple died in 1989, and some of their heirs filed a lawsuit seeking to have the trust declared invalid on the basis of the rule against perpetuities and all of the trust assets distributed to them. A federal district court agreed with the heirs, and the case was appealed. A federal appeals court reversed the lower court’s ruling, and ordered the trust reinstated. Applying the law of Arkansas (where the trust was created), the court observed:

Charitable bequests and trusts have traditionally been favorites of the law and courts will struggle to uphold them, whenever possible …. By the law of England [from the 16th century] and by the law of this country at the present day (except in those states in which it has been restricted by statute or judicial decision) trusts for public charitable purposes are applied under circumstances under which private trusts would fail. Being for objects of permanent interest and benefit to the public, they may be perpetual in their duration, and they are not within the rule against perpetuities …. A charitable trust constitutes an exception to the rule against perpetuities and cannot be invalidated for a violation of that rule. The Arkansas Supreme Court … held that “a charitable trust is not invalid although by the terms of the trust it is to continue for an indefinite or an unlimited period.” Because we hold that the trust [in this case] is a charitable trust, the trust may continue in perpetuity and not violate the rule against perpetuities.

This case illustrates an important point—while the rule against perpetuities generally prohibits trusts from continuing indefinitely, this rule (in many states) does not apply to charitable trusts. Lancaster v. Merchants National Bank, 961 F.2d 713 (8th Cir. 1992).

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