The Delaware Advantage - No Rule Against Perpetuties

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.

To simplify the rules concerning the duration of a trust, Delaware repealed its common law rule against perpetuities in 1986 and replaced it with a simple 110-year limitation.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.  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.  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.

Originally Posted Here