All About Estates

How long is perpetuity?

 

Basilica of Maxentius and Constantine, Rome   Credit: David’s Been Here

 

“Is perpetuity 21 years?”, asked a charity colleague.  “Well, no, it’s forever.  Or until the end of time, or as long as we collectively exist,” I answered.

Despite my emphatic response, the question is a good one because it underscores the inherent meaninglessness of the phrase “in perpetuity” in relation to charitable donations, trusts and endowments.

My colleague asked because her charity is drafting endowment policies and is debating about the term of funds.  One opinion within the charity is perpetuity must be – just had to be – tied to the 21-year capital disposition rule for trusts.  A generation.  But in common law (and the Income Tax Act) charitable trusts are exempt from the rule against perpetuities.

Rome & Erosion

Forever is a long time.  Beyond human imagining.  More to the point, “forever” is beyond proven human ability to maintain documents, systems and value.  Take a test number: 1,611 years.  That takes us back to the first sack of Rome in 410 AD.  Much has happened since then, and, of course, perpetuity is even longer.  Property erodes over time.

The point of this reductio ad absurdum argument is to make a plea for realism.  Lawyers and fundraisers: don’t use the term “in perpetuity” when drafting charitable bequests, deeds of gift and fund agreements.  Especially in estate planning, perpetuity is an emotionally powerful but intellectually incoherent concept.

Immortality v. Impact

At heart, the notion of “in perpetuity” creates unrealistic expectations for the donor, imposes unhelpful restrictions on the charity, and puts charitable capital at risk by saving it for an unreachable future.  The desire for immortality may appeal to the donor, but more flexible gifts and fund will serve the charitable purpose better – albeit over a shorter period.

Fortunately, the use of “in perpetuity” in drafting seems to be waning, and that is a good thing.  Capital preservation should be secondary to charitable impact.

 

About Malcolm Burrows
Malcolm is a philanthropic advisor with 30 years of experience. He is head, philanthropic advisory services at Scotia Wealth Management and founder of Aqueduct Foundation. Views are his own. malcolm.burrows@scotiawealth.com

2 Comments

  1. David Barker

    August 19, 2021 - 2:00 pm
    Reply

    Absolutely agree, Malcolm. While I rarely get into conversations on long-term endowments, I guide such clients toward an appropriate length of time that makes their gift last but will eventually disburse all the funds. For example, distribute returns only for 10 years, then amortize it over the next 15 years. It really irks me to see how much capital there is in perpetual endowments in North America, capital that will never be distributed. Your last line says it all.

    • Malcolm Burrows

      August 19, 2021 - 3:09 pm
      Reply

      David –
      Thanks for your note – and more to the point – leadership by Abundance on this issue of impact and flexible granting. It’s in your foundation’s name! Malcolm

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