I read the wikipedia article, but still don’t understand some things.
Suppose I want to set up a home for wayward cats. I create a nonprofit corporation to take care of wayward cats, and then leave all my money to the nonprofit after I die.
Why doesn’t this violate the rule against perpetuities? I have created an institution that will carry out my will after I am dead.
Or suppose I create a trust fund, and rather than leaving my money to the home I ask that the trust invest my money and make regular disbursements to the nonprofit that I created.
I can understand that you can leave all your money to a charity, and the charity will use the money as they see fit, and that seems reasonable, even if the charity might be around hundreds of years later. But can I create my own charity and write the charter myself and provide all the funding for it, and hundreds of years later the charity is still operating according to my whims?
I assume I can’t create a trust fund that is supposed to last forever, but if I create a charity and the charity has an endowment and the charity can last forever, how is that different?
If you establish a charity, you have set it up with rules on how it will be run after you die. Those rules would include membership of a board governing the charity, and on how they get appointed as they die, resign, etc. Your “whims” will be in the rules about the purposes of the charity, etc., but the charity won’t be governed by you: it will be governed by the rules and by the governing board.
And if 100 years from now someone on the board says, “What would Lemur866 do in this situation?” then the answer will be, “That doesn’t matter. What matters is the rules of the charity and what we, as the board, want to do.”
But suppose 100 years from now people look around and notice that my home for wayward cats foundation is nonsensical and want to change how the foundation operates so that it also cares for wayward dogs and hamsters.
But they can’t because the charter of the nonprofit (which I wrote) states that the foundation is to be used exclusively for wayward cats.
If they can amend the charter then my wishes are thwarted. I suppose the charter will have to have rules for amending the charter, but after 100 years why can’t the trustees of the board look around and decide to amend the charter to disburse the funds to care for wayward trustees rather than wayward cats?
Well, for one thing, it’s illegal for a non-profit to disburse assets of the foundation to its board members, aside from a reasonable salary.
That said, the current board members of a foundation are not generally bound by the decisions of previous boards or the founder after he’s gone. They can amend the bylaws and set new policy as much as they want. But a charity can only be closed by distributing its assets to other non-profits, or by spending everything it has and accepting no further donations.
A while back someone started a thread wondering if they could leave their money in a savings account until the interest built up to the point they owned everything in the world.
It was pointed out that there is an expiration point on your wishes, and at some point someone alive has to take charge of what you left behind, and they can do whatever they want with it at that point.
Basically, you can’t tell people what to do with your money forever. Eventually, it becomes someone else’s money.
The over-simplified answer to the OP is that the RAP is a rule about future interests–transfers that aren’t effective until some later date. A grant in a will is effective when you die and a grant to a trust is effective when you make the transfer. So the RAP just never really kicks in.
Here are some previous threads:
I read that there was a non profit started in the mid-late 60s whose goal was to do something like this – grow in size until it could take over most of the world’s charitable causes and even some government functions. But it was dissolved by its directors before it could start this because of the very danger of having so much money it could take over the world.
But I read that about 20 years ago and haven’t seen anything about it since to corroborate: does anyone have an idea what I’m talking about or am I just hallucinating?
You are hallucinating. Even if someone were foolish enough to start such an endowment, it wouldn’t grow, on average, any faster than the world economy as a whole.
So if I set up a home for wayward cats and leave it all my money at my death, and the next day the trustees look around the room and realize that I was crazy, and decide to dedicate the nonprofit to helping landmine victims, that’s perfectly legal? The only way I can prevent this is by carefully choosing trustees? But if my cat-loving trustees screw up and accidentally replace themselves with landmine-hating trustees, the non-profit’s goals can be changed to whatever they like (except fraud and etc)?
You’re mixing and matching concepts now. Non-profits have boards. Board members can be replaced and non-profit documents can be modified, to some extent.
If you create a trust with specific provisions about how the trust property should be used, the trust can’t be altered in most cases. That’s how pet owners make sure their own pets are cared for, for instance: http://www.professorbeyer.com/Articles/Animals.htm
OK, suppose the board members decide that I was an idiot to create a home for wayward cats, and the day after I die they sit down and rewrite the charter to support landmine victims instead. The only legal restriction on this is whatever general legal restrictions there are on changing the charter for nonprofits?
Or take Heinlein’s famous fictional Howard Foundation, which was set up to give money to long-lived people who had children. Would this foundation actually be legal? And if the board members decide the idea is stupid, what prevents them from changing it?
Not really, but that’s not a perpetuities issue, that’s an incorporation issue. The only thing that I want to say about the rule against perpetuities is that unless you really have a perpetuities issue, don’t bother trying to understand it - it will confuse you endlessly and make you hate yourself for trying to understand it. Or maybe that’s just my experience.
OK, so the rule against perpetuities doesn’t affect this sort of thing, only things like leaving your property to A, and then after A dies leaving it to B, and then after B dies leaving it to C, and then after C dies leaving it to D, and so on. You can specify who gets your property, but you can only dictate so much after death, with a 21 year limit attaching at some point to some person, but nevermind exactly who, just that eventually your control vanishes.
But if I understand, this has nothing to do with setting up a foundation or a trust and leaving my money to the trust to accomplish some goal after my death. I can set up an organization to accomplish some goal, and give that organization money, and after I’m dead the organization can continue on. But it has nothing to do with the rule against perpetuities, and that organization is just like any other organization and the fact that I was the founder of the organization and gave it money means nothing. The organization has a life of its own.
Yes. But if you set up your charity or trust properly, you may successfully restrict its activities to a certain area. Exactly how you would do that would depend on your jurisdiction (different jurisdictions have different rules about incorporation of corporations, charities, trusts, non-profits, etc.)
So the fact that I’m dead or alive doesn’t have any bearing on the organization. I can set up a foundation for wayward cats today while I’m still alive and give it $X while I’m still alive, and then I no longer control that money, the foundation controls it under whatever laws the foundation is bound to follow. And if I give the money after I die it doesn’t make any difference. I can’t control the money from beyond the grave any more than if I gave the money to the Humane Society.
Cecil Rhodes created the Rhodes Scholars program for deserving white males to go to University in England. But the trustees have changed it, despite his clear intentions, to also give awards to women and non-white people.
How about a will disposing of property for a specific purpose? The Griffith Observatory in Los Angeles is on land which Col. Griffith donated to the city. He also left money to the city with the condition that it be used to build an observatory and that admission never be charged. How enforceable is that provision? Legally is there any way to prevent the city from saying “we’re broke, we have to charge admission now”? Griffith died in 1919.
If this is too tangential I can move it to its own thread.
That’s exactly the sort of thing I was curious about. We have laws that say your wishes should be followed, even after you are dead. But there have to be limits, otherwise living people would become enslaved by the dead. And that would be just creepy.
Obviously this depends on the law of the place where the charity is established. At the risk of oversimplification, most places allow the establishment of charitable foundations which will or may operate indefinitely. That’s the rule against perpetuities point.
Separately, most places also recognise that, given that the rule against perpetuities has been dissapplied, these charities may operate for a very long time and in the long term, circumstances and realities change and there has to be some mechanism by which the objects, purposes and operations of a charity can change in light of that. The mechanism varies, but it usually involves the current governors of the charity taking the initiative, and proposing to some authority – it may be a court, or a government agency which registers and regulates charities – that the original purposes of the charity are no longer practical, or are no longer charitable, and that some modification is needed. It would, I think, be unusual for the law to give the current governors of a charity the right to make fundamental changes to the objects and purposes of the charity without the agreement of any outside agency (although, of course, the rules and constitution of a particular charity could be written so as to give the governors sweeping rights in this regard, subject only to the restriction that the any new objects and purposes would have to be charitable).