The debate over how to manage the wealthy’s fortunes after their deaths traces its roots to Henry VIII and Elizabeth I

Nuri Heckler, The Conversation

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.

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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.

The charitable exception today

When the U.S. broke away from Great Britain and became an independent country, it was unclear whether it would stick with the charitable exception.

Some states initially rejected British law, but by the early 19th century, every state in the U.S. had adopted the Rule Against Perpetuities.

In the late 1800s, scholars started debating the value of the rule, even as large foundations took advantage of Elizabeth’s philanthropy loophole. My co-authors and I found that, as of 2022, 40 U.S. states had ended or limited the rule; every jurisdiction, including the District of Columbia, permits eternal control over donations.

Although this legal precept has endured, many scholars, charities and philanthropists question whether it makes sense to let foundations hang on to massive endowments with the goal of operating in the future in accordance with the wishes of a long-gone donor rather than spend that money to meet society’s needs today.

With such issues as climate change, spending more now could significantly decrease what it will cost later to resolve the problem.

Still other problems require change that is more likely to come from smaller nonprofits. In one example, many long-running foundations, including the Ford, Carnegie and Kellogg foundations, contributed large sums to help Flint, Michigan, after a shift in water supply brought lead in the tap water to poisonous levels. Some scholars argue this money undermined local community groups that better understood the needs of Flint’s residents.

Another argument is more philosophical: Why should dead billionaires get credit for helping to solve contemporary problems through the foundations bearing their names? This question often leads to a debate over whether history is being rewritten in ways that emphasize their philanthropy over the sometimes questionable ways that they secured their wealth.

Some of those very rich people who started massive foundations were racist and anti-Semitic. Does their use of this rule that’s been around for hundreds of years give them the right to influence how Americans solve 21st-century problems?

Nuri Heckler is an expert on public administration at the University of Nebraska Omaha. His research focuses on power in public organizations, including nonprofits, social enterprise and government. 

This article is republished from The Conversation under a Creative Commons license. Read the original article.