“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.