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F I S C A L I M P A C T R E P O R T

SPONSOR Robinson

ORIGINAL DATE

LAST UPDATED

2/8/07

HB

SHORT TITLE Remove Statutory Rule Against Perpetuities

SB 522

ANALYST Ortiz

APPROPRIATION (dollars in thousands)

Appropriation

Recurring

or Non-Rec

Fund

Affected

FY07

FY08

NFI

(Parenthesis ( ) Indicate Expenditure Decreases)

LFC Files

Responses Received From

Attorney General’s Office (AGO)

SUMMARY

Synopsis of Bill

Senate Bill 522 would enact a new section providing that “The common law rule against

perpetuities as it applies to New Mexico is abrogated." The bill would also repeal the statutory

“rule against perpetuities" set forth in New Mexico’s Uniform Probate Code in NMSA Sections

45-2-901- to 45-2-906.

SIGNIFICANT ISSUES

The effect of this bill would be to abolish any rule of perpetuities in New Mexico, thereby

allowing testators to earmark property for ownership, use or enjoyment by persons in the infinite

future for generations to come.

According to the AGO, the “rule against perpetuities" is a rule in property law that prohibits a

grant of property from “vesting" (entitling the beneficiary to present or future ownership, use or

enjoyment of property) beyond a certain period of time. It is intended to prevent people from

tying up assets for too long a period of time and is concerned with the “utility" of property. The

purpose of the rule is to limit a testator’s power to earmark property gifts for remote descendants.

Attempts to do so beyond the so-called “common law" period or beyond superceding statutory

periods are void. Examples of such attempts usually involve contingencies requiring a

Senate Bill 522 – Page

2

beneficiary to reach a certain age or to survive other beneficiaries. (e.g. leaving property in trust

with the income going to a succession of beneficiaries, then the corpus to other beneficiaries if

they live to a certain age and if they do not, to charity, etc.)

The common law rule against perpetuities, as defined by the Deluxe Eighth Edition of Black’s

Law Dictionary, prohibits a grant of an estate unless the interest must vest, if it all, no later than

21 years (plus a period of gestation to cover a posthumous birth) after the death of some person

alive when the interest was created." This bill “abrogates", or abolishes, that rule which

presumably would apply if the superceding statutes are repealed.

New Mexico has superceded the common law rule against perpetuities by adopting the Uniform

Statutory Rule Against Perpetuities drafted by the National Conference of Commissioners on

Uniform State Laws. The statutory rule contains two components: 1) a nonvested property

interest is valid when it is created if it is certain to vest, or is certain to fail to vest, within 21

years after the death of an individual then actually alive; and 2) if an interest is not certain to

either vest or terminate within the 21 year period, it must vest within ninety years of its creation

or it terminates. The bill also repeals those statutes.

OTHER SUBSTANTIVE ISSUES

According to AOC, the common law Rule against Perpetuities basically governs how long

property can be tied up in a trust. As Professor Neil Harl, economics professor at Iowa State,

explains, “The Rule has come to stand for the proposition that interests in trust must vest, if at

all, not later than 21 years after the last to die of a class of lives in being at the creation of the

interest in trust. As a practical matter, that has tended to impose a maximum term of 100 to 125

years for property to be held in trust."

EO/nt