Perpetuities and Accumulations Act 2009
by Roderick Ramage, solicitor, www.law-office.co.uk
first published in Solicitors Journal on line (www.solicitorsjournal.com) on 15 December 2009
This article is not advice to any person and may not be taken as a definitive statement of the law in general or in any particular case. The author does not accept any responsibility for anything that any person does or does not do as a result of reading it.
This Act, which received Royal Assent on 12 November 2009 and will come into force on such day as the Lord Chancellor appoints by order, is intended to be a simplification and modernisation of the law.
perpetuities – historic background
The rule against perpetuities was developed by the courts, eg Bristow v Warde, [1775-1802] All ER Rep 369, 2 Ves 336, to prevent land and other property from being help on trust in perpetuity, and does so by ensuring that the trust property must vest, ie become someone’s property, in a specified period. The common law period was that property must vest within a life or lives in being plus 21 years. The life in being could be the settlor or a beneficiary, but commonly, in order to maximise the period, a widespread group of lives sufficiently well known to be identified was used: commonly a so-called “royal lives” clause would provide, for example, that the trust property vests within “the life the last to die of the lineal descendents now living of His Majesty the late King George the Fifth and twenty one years thereafter.” One of the problems with the rule against perpetuities was that, if one could not state with certainty at the date of the disposition that the property would vest in the perpetuity period, the disposition would be void. The rule against perpetuities also applies to certain future interests in land.
The Perpetuities and Accumulations 1964 Act made three reforms. One, by s1, was to enable a fixed period not exceeding 80 years to be the perpetuity period. Another, by s3, was to introduce the so-called “wait and see” rule, under which, a disposition, which under common law would be void for uncertainty, would be valid if it actually vests in the perpetuity period. The third are rules to save gifts which would otherwise be void, eg, reducing a vesting age to 21 years (s4(1),(2)), class closing (s4(3)(4)), providing that a disposition is not void because the prior interest on which it was dependent was void (s6).
perpetuities – the 2009 Act
When the 2009 Act comes into force, the rule will apply only to the interests listed in s1, which are, broadly speaking, trusts creating successive interest, interests subject to interest precedent and subsequent and powers of appointment: for a full list see the section. The rule will cease to apply to such future interests in land as easements, profits à prendre, powers of entry, which are not included in s1. By s2 the rule does not apply to certain rights relating to charities or (for most purposes) to pension schemes, and by s3 the Lord Chancellor may specify other exceptions.
Section 5 provides that the perpetuity period is 125 years, and no other period, from (by s6) the date on which the instrument making the disposition takes effect. This period applies whether or not the instrument specifies a perpetuity period, and any period specified in it is void. The 1964 Act provided that the 80 year period would apply only if the instrument so provided. The wait and see rule and gift saving provisions in the 1964 Act are repeated in the 2009 Act.
excessive accumulations – historic background
In contrast with the rule against perpetuities, the rule against excessive accumulations is statute made, originally by the Accumulations Act 1800 and currently in s164 of the Law of Property Act 1925 and s13 of the 1964 Act, both prospectively repealed. Evidently the legislature no longer feels the fear that it suffered after the case of Thellusson v Woodford, (1799) 4 Ves 227, (affd HL (1805) 11 Ves 112, [1803-13] All ER Rep 30), that an unrestricted period of accumulation would concentrate too much money in too few hands and compromise the country’s economic independence. In the end the lawyers took much of the accumulations fund in a string of litigation ending with Thellusson v Lord Rendlesham (1859) 7 HL Cas 429.
excessive accumulations - the 2009 Act
Section 13 abolishes the rule against excessive accumulations, but by s14 creates a new rule limiting the accumulation period for charitable trusts to 21 years from the first day on which the income must or may be accumulated.
the 2009 Act – other details
If the trustees believe that it is difficult or not reasonably practicable for them to ascertain whether the lives in a life in being perpetuity period have ended and therefore whether the perpetuity period has ended execute an irrevocable deed stating that belief, the instrument creating the trust has effect as if the perpetuity period were 100 years: s12.
The 2009 Act applies to dispositions made otherwise than by an instrument, as if the provision were contained in an instrument taking effect on the making of the disposition: s19.
The provisions of the 2009 Act will apply only to interests under instruments that take effect on and after its commencement. Testamentary dispositions take effect at the date of death: s20(6). The provisions in s12 (for a perpetuity period of 100 years) apply to a will executed before the commencement date of the 2009 Act, whether or not it takes effect before that day, and to any other instrument taking effect before that day: s15(2). The Act will not affect any interests in land that exist when it comes in to force and are subject to the rule against perpetuities.
how does it affect my work
Here are a few guidelines about the practical effect of the Act when brought into force.
1 The law as it stands at present will continue to apply to trusts in existence and grants of future property rights made before the 2009 Act comes into effect. Charitable trusts continue not to be subject ot the rule against perpetuities
2 There will no longer be a need to define the perpetuity period or even to include a perpetuity clause in documents made after the 2009 Act comes into force, but lawyers will still need to know and explain the rule against perpetuities where is applies (principally successive interest in trust property). Any period specified other than 125 years will be void. In practice however, it will be useful to declare that a perpetuity period of 125 years applies to the trust so that the existence o the rule is not overlooked
3 Existing trusts with a life-in-being perpetuity period should be examined, because, if it is uncertain whether the period has ended, the trustees may adopt instead a perpetuity period of 100 years.
4 The rule against perpetuities will not apply to instruments creating options exercisable in the future or easements which will come into existence in the future or in overage agreements.
5 It will not be necessary to stipulate any limit to the time during which non-charitable trust income may be accumulated, but any accumulation of income in a charitable trust must be limited to 25 years.
copyright Roderick Ramage
click below to