What Is the “Rule Against Perpetuities”?

In common law, there is a principle known as the rule against perpetuities (RAP). In its original form, the RAP provided that you could not use a legal instrument, such as a deed or will, to create an interest in real or personal property that vests more than 21 years after the death of an individual alive when the instrument was created.

Here is a simple hypothetical example. Melissa executes a will leaving one of her investment properties to her daughter Alison. The will further directs that any future child of Alison will inherit a share of the property when they turn 25. Melissa died in 2010. Alison had a son, Frank, in 2024. Since Frank will not turn 25 until 2049, the classical RAP would bar his inheritance, since his interest in the property would not vest until more than 21 years after Melissa’s death.

Under current Florida law, however, there would be no issue. Florida adopted a revised statutory RAP that allows an interest to vest up to 90 years after its creation. (If the interest is created via a trust, as opposed to a will, it does not have to vest until 1,000 years after creation.)

Florida Court Rules New York’s RAP Does Not Bar Shareholder Redemption Agreement

Other states continue to adhere to the traditional 21-year RAP. Even then, the RAP is not applicable in every situation where a property interest may not vest for many years after a person’s death. The Florida Fourth District Court of Appeal recently addressed such a case. In Marshall v. MacWilliam, the issue was whether New York’s more traditional RAP applied to a mandatory stock redemption agreement.

This case involved a closely held family business. The business is a corporation that had four shareholders: a father, mother, son, and daughter. The parties signed a shareholder agreement, which was subject to New York law. As relevant here, the agreement provided that none of the family members could sell or transfer their shares in the corporation without first offering it to the other shareholders. And if any shareholder died, their estate had to redeem their shares with the corporation. The agreement further required each shareholder to incorporate these terms into their respective wills.

The father died in 2014 while residing in Florida. The daughter subsequently filed a petition in Florida court to determine ownership of her late father’s shares in the corporation. It turned out that the father’s will left his shares to a living trust, which in turn devised the stock to the son. The daughter argued this violated the shareholder agreement.

The administrator of the father’s estate argued, however, that the mandatory redemption clause in the shareholder agreement violated New York’s RAP “because a transfer of shares may vest in a shareholder born after a then-existing shareholder’s life in being plus twenty-one years.” The administrator therefore maintained that the father’s will should control the disposition of the shares.

The trial court sided with the administrator and held the shareholder agreement violated the RAP. The Fourth District disagreed, however, and reversed. The Florida court noted that the New York’s RAP does not apply to corporations. Indeed, a corporation by definition is a legal entity that “exists in perpetuity, which is antithetical to the RAP.” More to the point, New York courts have “consistently upheld stock redemption agreements as valid and enforceable.” In short, the common law RAP still followed by New York did not apply to the facts of this case.

Contact Florida Estate Litigation Attorney Mark R. Manceri Today

Even when a legal dispute centers on the actions of a Florida probate estate, the resolution may center on questions of law involving other states and jurisdictions. This is why it is important to work with an experienced Pompano Beach estate and trust litigation lawyer. Contact the offices of Mark R. Manceri, P.A., today to schedule a consultation.

Source:

4dca.flcourts.gov/content/download/2437374/opinion/Opinion_2022-1571.pdf