Perpetuity refers to a financial arrangement that continues indefinitely without an end. In finance, it describes an annuity where payments are made at regular intervals, starting on a specified date and lasting forever. Common examples of perpetuities include fixed payments from endowments or scholarships funded by investments.
Perpetuity is often encountered in legal and financial contexts, particularly in estate planning, trusts, and financial contracts. It is relevant in areas such as:
Users can manage some aspects of these arrangements through legal forms available from US Legal Forms, which are drafted by qualified attorneys.
Here are a couple of examples of abatement:
Example 1: A university establishes a scholarship fund that pays $1,000 annually to a student. The fund is financed with an endowment of $33,333, which earns interest at a rate of 3%.
Example 2: A trust is set up to provide $500 each year to a charity, funded by an initial investment that generates a consistent return (hypothetical example).
Examples of state differences (not exhaustive):
| State | Notes |
|---|---|
| California | Perpetuities are subject to the Rule Against Perpetuities, limiting their duration. |
| New York | Allows for certain perpetuities under specific conditions, particularly in trusts. |
| Texas | Has its own rules regarding the duration of trusts and perpetuities. |
This is not a complete list. State laws vary, and users should consult local rules for specific guidance.
| Term | Definition | Difference |
|---|---|---|
| Perpetuity | Payments that continue indefinitely. | Lasts forever without an end. |
| Annuity | A series of payments made at equal intervals. | Typically has a fixed term, unlike perpetuity. |
| Trust | A fiduciary arrangement allowing a third party to hold assets on behalf of beneficiaries. | A trust can include perpetuity but may also have a defined duration. |
If you are considering establishing a perpetuity, it is important to:
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| Attribute | Details |
|---|---|
| Typical payment | Varies based on the endowment or investment. |
| Duration | Indefinite. |
| Interest rate | Fixed rate used for present value calculations. |
| Legal considerations | Subject to state laws regarding trusts and perpetuities. |