The Tudor Roots of Modern Billionaires’ Philanthropy

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From Smithsonian Magazine:

More than 230 of the world’s wealthiest people, including Elon Musk, Bill Gates and Warren Buffett, have promised to give at least half of their fortunes to charity within their lifetimes or in their wills by signing the Giving Pledge. Some of the most affluent, including Jeff Bezos (who hadn’t signed the Giving Pledge as of early 2023) and his ex-wife MacKenzie Scott (who did sign the pledge after their divorce in 2019) have declared that they will go further by giving most of their fortunes to charity before they die.

This movement stands in contrast to practices of many of the philanthropists of the late 19th and early 20th centuries. Industrial titans like oil baron John D. Rockefeller, automotive entrepreneur Henry Ford and steel magnate Andrew Carnegie established massive foundations that to this day have big pots of money at their disposal despite decades of charitable grantmaking. This kind of control over funds after death is usually illegal because of a “you can’t take it with you” legal doctrine that originated in England 500 years ago.

Known as the Rule Against Perpetuities, it holds that control over property must cease within 21 years of a death. But there is a loophole in that rule for money given to charities, which theoretically can flow forever. Without it, many of the largest American and British foundations would have closed their doors after disbursing all their funds long ago.

As a lawyer and researcher who studies nonprofit law and history, I wondered why American donors get to give from the grave.

Henry VIII had his eye on property

In a recent working paper that I wrote with my colleague Angela Eikenberry and Kenya Love, a graduate student, we explained that this debate goes back to the court of Tudor monarch Henry VIII.

The Rule Against Perpetuities developed in response to political upheaval in the 1530s. The old feudal law made it almost impossible for most properties to be sold, foreclosed upon or have their ownership changed in any way.

At the time, a small number of people and the Catholic Church controlled most of the wealth in England. Henry wanted to end this practice because it was difficult to tax property that never transferred, and property owners were mostly unaccountable to England’s monarchy. This encouraged fraud and led to a consolidation of wealth that threatened the king’s power.

As he sought to sever England’s ties to the Catholic Church, Henry had one eye on changing religious doctrine so he could divorce his first wife, Catherine of Aragon, and the other on all the property that would become available when he booted out the church.

After splitting with the church and securing his divorce, he enacted a new property system giving the British monarchy more power over wealth. Henry then used that power to seize property. Most of the property the king took first belonged to the church, but all property interests were more vulnerable under the new law.

Henry’s power grab angered the wealthy gentry, who launched a violent uprising known as the Pilgrimage of Grace.

After quelling that upheaval, Henry compromised by allowing the transfer of property from one generation to the next. But he didn’t let people tell others how to use their property after they died. The courts later developed the Rule Against Perpetuities to allow people to transfer property to their children when they turned 21 years old.

At the same time, wealthy Englishmen were encouraged to give large sums of money and property to help the poor. Some of these funds had strings attached for longer than the 21 years.

Elizabeth I codified the rule

Elizabeth I, Henry’s daughter with his ill-fated wife Anne Boleyn, became queen in 1558, after the deaths of her siblings Edward VI and Mary I. She used her reign to codify that previously informal charitable exception. By then it was the 1590s, a tough time for England, due to two wars, a pandemic, inflation and famine. Elizabeth needed to prevent unrest without raising taxes even further than she already had.

Elizabeth’s solution was a new law decreed in 1601. Known as the Statute of Charitable Uses, it encouraged the wealthy to make big charitable donations and gave courts the power to enforce the terms of the gifts.

The monarchy believed that partnering with charities would ease the burdens of the state to aid the poor.

This concept remains popular today, especially among conservatives in the United States and United Kingdom.

Link to the rest at Smithsonian Magazine

PG says the Rule Against Perpetuities provides fertile ground for law school examinations.

It also forms a basis for a great many colorful hypothetical question.

He will limit himself to one: The Fertile Octogenarian:

From Wikipedia:

The fertile octogenarian is a fictitious character that comes up when applying the rule against perpetuities. The rule presumes that anyone, even an octogenarian (i.e., someone between 80 and 90 years of age) can parent a child, regardless of sex or health. For instance, suppose that a will devises a piece of land known as Blackacre “to A for her life, and then to the first of A’s children to reach 25 years of age.” A is, at the time the will is probated, an 85-year-old woman. In applying the rule against perpetuities, an imaginative lawyer will argue (and a court must accept under the common law rule itself) that A could have a child in her 86th year and then in her 87th year all of A’s other children could die, then in her 88th year A herself could die. Because the interest will not vest until her new child reaches 25 years of age, which cannot happen until more than 21 years after A and her other children (together who form the “lives in being” to which the rule refers) have all died, the rule against perpetuities makes the entire gift “to the first of A’s children to reach 25 years of age” void. A will hold Blackacre for life, and then the property will revert to the person whose will transferred it to A in the first place. (Actually, it will go to that person’s estate, since the will was probated only after his death.)

While it is true that there is often no statutory maximum age limit to perform an adoption, and adopted children are often treated the same as natural children, so an 86-year-old woman who adopts a newborn child is legally in the same position as an 86-year-old woman who gives birth, the fertile octogenarian rule predates the laws allowing legal adoption.

The legal fiction of the fertile octogenarian assumes that a living person, regardless of sex, age, or physical condition, will always be capable of having more children, thus allowing an interest to vest 21 years after all the lives in being at the time of the grant are dead. Couples have been known to marry in their late eighties.

In certain places this assumption will be limited to a fixed age set by statute. Furthermore, many jurisdictions have discarded old common-law fictions such as the “fertile octogenarian.”

Link to the rest at Wikipedia

PG will note that Blackacre is a term he has only heard in law school classrooms.