Legal Definitions - perpetuity

Perpetuity means something that goes on forever. In finance, it refers to a cash flow that continues indefinitely. This is called an annuity. A perpetuity is an annuity that is paid out in periodic payments for an infinite amount of time. The value of a perpetuity can be calculated using a formula.

An example of a perpetuity is a bond that pays a fixed amount of interest every year, forever. The bondholder will receive the same amount of money every year, without any end date.

In property law, perpetuity is important in the Rule Against Perpetuities. This rule states that no future property interest is valid unless it vests no later than twenty-one years after the death of a person alive at the time the property interest was created. This means that property cannot be tied up in legal limbo for too long.

For example, if someone creates a trust that gives their property to their grandchildren, but only when their grandchildren have children of their own, this would violate the Rule Against Perpetuities. The property would be tied up for too long, and the grandchildren may never have children, leaving the property in legal limbo.

Overall, perpetuity refers to something that goes on forever, whether it's a cash flow or a legal concept.