⇒ It is in public interest that property – both real and personal – should be able to be alienated freely. There is a rule that property may not remain in trust perpetually; or for too long a period
⇒ This is known as the rule against perpetuities or, perhaps more accurately, the rule against remoteness of vesting.
⇒ An early reference to rule against perpetuities was seen in the case of Stanley v Leigh (1732)
⇒ All private trusts must have a provision for their ending within a certain period (this is usually done by vesting any property left over absolutely into the children, grandchildren, etc. of the settlor). If there is no such provision, the trust may be void. The trust property will then return to the settlor on a resulting trust: Air Jamaica v Charlton [1999]
⇒ Before April 2010, the trust property had to vest (i.e. the legal and beneficial titles had to be held by the same person or persons) within a life in being plus 21 years; or within 80 years (i.e. say in 80 years the property will vest).
⇒ A life in being was usually the life of the first beneficiary, but could be someone else’s life, such as a member of the royal family (as seen in the case of Re Horley Town FC: the perpetuity period in this case was 21 years after the death of the youngest descendant of George VI living in 1948)
⇒ This rule allowed the settlor to leave property to his or her children and then to his or her grandchildren, with the property vesting in the grandchildren when they reached the age of 21. Any attempt to control the disposition of property beyond that point (i.e beyond the perpetuity period) was held to be void (and would invalidate the trust)
⇒ The life in being test allowed a life interest to be held by a person, and the remainder to pass to their children on reaching 21. There was a possible gestation period allowed, so that property could pass to a child en ventre sa mere at the time of the life tenant’s death (i.e. a possible 9 months extra if the child is in the womb at time of life tenant’s death)
⇒ Under the old rule (under the common law before 1964), the mere possibility that property might not have vested before the end of the permitted period was enough to invalidate the trust ab initio (i.e. from the beginning). This was the basis of the judgment in Air Jamaica v Charlton [1999], a Privy Council case from Jamaica, in which the old rule against perpetuities still applied (i.e. the rule England and Wales applied before 1964)
⇒ The Privy Council held in the case that each employee’s pension fund was a separate trust, established at the time that the employee joined the scheme. The power to provide benefits to widows offended against the rule against perpetuities, as it was possible for a person to marry, after the constitution of the trust, a person who had not been alive at the date of constitution.
⇒ In Pilkington v Inland Revenue Commissioners [1964] the establishment of a second trust for a man's daughter, who was not alive when the original trust was established, took the perpetuity period from the original trust
⇒ The Perpetuities and Accumulations Act 1964 introduced the ‘wait and see’ rule: the trust did not become void until it became established that the trust property would not vest until after the end of the perpetuity period.
⇒ The Perpetuities and Accumulations Act 2009 provides that, for any trust established after 6 April 2010, the perpetuity period is 125 years. The trust instrument must provide that the property vests within that period, subject to the ‘wait and see’ rule.
⇒ It should be noted that trusts may exist for a considerable period: there are trusts set up on the majority of the life beneficiary which could have been in existence since well before the 1964 Act: a person aged 21 in 1964 would now be 71.
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⇒ An accumulation is where the income from the capital property, whether land or investments, is added to the capital, rather than distributed to the beneficiaries; or where there are provisions to delay the beneficial enjoyment of the property.
⇒ Again, it is because it is contrary to public policy to have property ‘tied up’ for long periods, that there has been a prohibition against indefinite or long-lasting accumulations → But in 2010 the rule against accumulations was abolished
⇒ For trusts created before 6 April 2010, the income cannot be accumulated for longer than one of the allowed periods, of 21 years or the minority of a person in being
⇒ The rule has been abolished for trusts created after 6 April 2010, by the Perpetuities and Accumulations Act 2009
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