Matters of trust

With the advent of the Perpetuities and Accumulations Act 2009 there will be a collective sigh of relief from students .

Or will there be?

While the Act may have received Royal Assent, it still has to be implemented which is not likely to happen until after the middle of 2010 so we will have to continue with the old law for the time being.

The old law is contained in common law and in the Perpetuities and Accumulations Act 1964 (PAA 1964) and provides that a future interest must vest (to prevent it being perpetually  inalienable) at common law, within a life or lives in being at the date of the disposition plus 21 years and under the Act, within a period of up to 80 years as specified or 21 years in the case of an option in respect of land.

In respect of the accumulation of income the permitted periods are:
l the lifetime of the grantor/settler.
l 21 years from their death.
l the minority of person(s) living or en ventre sa mere at the death of the grantor/settlor/testator.
l the minority of person(s) who if of full age would be entitled to the income accumulated.
l 21 years from the disposition.
l  the minority of person(s) in being at the date of the disposition.

There can be no doubt that these increasingly archaic rules were troublesome and as long ago as 1989 the Law Commission started consultations on alterations to them. This culminated in a paper in 1993 identifying defects in the system and a final Report in 1998 with a draft bill. However, it took until now for an Act to give effect to that Report.
The defects identified were that:
l the original concept of preventing the perpetuality of family settlements had been extended into commercial areas where it was never intended to apply
l some pension policies had been caught by the rules which was never the intention
l the multiple permutations of calculating perpetuity periods was too complex particularly when a ‘royal lives clause’ was used
l there no longer appeared to be any sound reason to prevent a settlor accumulating income

The result are the new rules but, save for one exception, they will only apply to trusts taking effect after commencement of the Act and to wills which are executed after that commencement (s 15). In respect of wills executed before the Act commencement date but where the testator dies after that date the old rules will apply (s 15(1)(a).The new rules in relation to the vesting of future interests provide:
l for a single mandatory perpetuity period of 125 years for settlors and testators no matter what the disposing instrument may say (s 5).
l that, by implication, the period will not apply to commercial interests but only to future interests and those held on trust (s 1).
l that only statute will apply to the calculation of a perpetuity period thus rendering the common law periods obsolete.
l that all pension schemes are exempt (s 2(4)).
l that to avoid the uncertainty surrounding the calculation of the period when a “lives in being” clause in an existing trust is used the trustees, by deed, can opt in to a period of 100 years (s 12).

In respect of accumulations the new rules are simply: that the previous rule is abolished save for charitable trusts (ss 13, 14); and that for charitable trusts there will be two available accumulation periods namely 21 years or the life of the settlor (s 14).

The Act does not specifically refer to a codicil executed after the commencement date where this refers to a will executed prior to that date. It could depend on whether the codicil effectively republishes the will in which case it would be reasonable to suppose that the date of execution of the will for the purposes of the Act is the date of the execution of the codicil. However, there have been decisions that indicate that for statutory purposes the operative date can be the date of the will, the date of the codicil or the date of death.

As this issue is not without doubt, it may be preferable for a testator to make a new will if he wishes to adopt and take advantage of the new rules.
In the transitional period while the old rules are with us wills and trusts should continue to be drafted in accordance with common law and the provisions of PAA 1964. If a testator wishes to take advantage of the new rules it seems that they must wait and make a new will after the commencement date.

Unfortunately, the sigh of relief will have to wait. 

Malcolm Skinner, solicitor, LexisPSL

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