STEP – MANCHESTER
Tuesday 9 March 2010
THE PERPETUITIES AND ACCUMULATIONS ACT 2009
Francesca Quint, Radcliffe Chambers
Previous law (briefly)
See textbooks by Gray, Morris & Leach and Maudsley
Common law
Private trusts - duration max 21 years after the termination of a specified life in being i.e. all
interests must vest within the perpetuity period and that they must be certain at the outset
Typical ‘royal lives clause’ (now rare)
‘Life in being’ includes someone conceived but unborn (‘en ventre sa mere’)
Conclusive presumptions: men can have children at any age, women until 55 (includes adoption)
Charitable trusts – no limit on duration or on gift over from charity to charity, but the initial charitable interest following a private interest must vest within the perpetuity period
Anomalous trusts (animals and monuments) – duration 21 years only
Law of Property Act 1925
S 4(3)
A right of entry relating to an estate in fee simple is subject to the perpetuity rule
S 121(6)
Enforcement remedies for payment charged on land are unaffected by rule
S 162
Rule not applicable to various powers
Ss 164-166
All trusts – with specified exceptions (including where there is a minority followed by an express
trust for accumulation) - duration of accumulation limited to
- 21 years
- life of settlor
- 21 years from death of settler/testator
- Minority of a person who is living or has been conceived
Perpetuities and Accumulations Act 1964
‘Wait and see’ principle introduced – same general rule but no need for certainty at the outset
Optional to specify period of up to 80 years as the perpetuity period (now commonplace)
Pension Schemes Act 1993 and regs
S163 Rule inapplicable to various types of pension scheme (public service, contracted out, certain
personal pension schemes, others)
Proposals for change
Law Commission Consultation Paper 1998
Recommendations (accepted by Government 2001)
Perpetuity period for private trusts to be 125 years
No limit on duration of accumulation except for charities – 21 years
Law Commission/ MoJ Draft bill with stakeholder consultation 2008
Articles in ‘Private Client Business’
(2009) issue 2 p 126
F Quint ‘The Perpetuities and Accumulations Bill: Clarity or Confusion?’
(2009) issue 4 p 269
Catherine Donovan ‘Receiving Pension Death Benefits: A Wealth of Uncertainty’
Perpetuities and Accumulations Bill
Introduced into the House of Lords April 2009
Special Public Bill Committee of HL May-June 2009
Amendments
- Definition of ‘charity’ to include an implied trust for charitable purposes (Explanatory
Note only changed) – Charities Act 2006 s 1(1) and Charities Act 1993 s 97
- Settlor’s life inserted as alternative accumulation period for charitable trusts
Report stage (HL) July 2009
Passed all stages in HC without amendment
Royal Assent 12 November 2009
Act comes into force on 6 April 2010
New law
Sections 1 – 12 Perpetuities
The rule restated applies
- To each of a number of successive estates/interests
- To any estate/interest subject to a condition precedent including reverter after a
determinable fee simple
- Where there is a condition subsequent, to any right of re-entry or similar right in respect
of property other than land exercisable when the condition is broken
- In a will to each of successive interests in personal property
- To a power of appointment
Exceptions for
- Estate or interest to charity created on the occurrence of an event, where the property
is vested in a charity immediately before
- Right exercisable by a charity on the occurrence of an event, where the property is held
by a charity immediately before
- Right arising under a relevant pension scheme but not under a nomination or power of
advancement under the scheme
- Cases to be specified by Order of the Lord Chancellor (affirmative resolution required in
both Houses of Parliament)
Existing statutory exceptions abolished
Perpetuity period
- The perpetuity period is 125 years only, whether or not specified in the trusts
- Any specification of a perpetuity period is ineffective
Start of period is
- When the instrument takes effect
- When the instrument creating the special power of appointment under which it is made
takes effect
- Under a relevant pension schemes, where the instrument nominates benefits or is made
under a power of advancement, when the member joined the pension scheme
‘Wait and see’
- Where it is not clear at the outset, treat disposition or general power of appointment as
unaffected by the rule, and all transactions as valid, until it becomes clear that
vesting/exercise of power can only occur after the end of the period
- For rights of entry, equivalent rights not relating to land and special powers of
appointment, anything done in exercise of right/power is valid if done within the period
Exclusion of class members
- Potential members/ unborn persons who at birth will be potential members are
excluded from a class of beneficiaries as soon as it is clear that their interest can only
vest outside the period
- Any prior exercise of a power of advancement etc is valid
Expectant interests
- Remain valid even if in succession or dependent on a void interest
- Accelerated
Determinable interests
- If right of reverter or resulting trust on determination of determinable fee
simple/interest is void, prior estate/interest becomes absolute
Powers of appointment
For perpetuity rule purposes a power of appointment is a special power unless
- Exercisable by one person only
- Appointor could exercise the power in favour either himself immediately and/or by will
in favour of his personal representatives
Pre 06/04/10 instruments
Where
- perpetuity period is specified by reference to lives in being and
- the trustees find it difficult to ascertain when the lives ended,
the trustees can execute an irrevocable deed stating that there is a difficulty and that s 12(2)
should apply to the instrument
On the execution of deed the perpetuity period becomes 100 years only and the 2010 Act
provisions and not the PAA Act 1964 apply
NB Doesn’t apply to
- trusts whose provisions are exhausted before 06/04/10
- where all the property becomes applicable for charity before 06/04/10
Sections 13 – 14 Accumulations
Distinguish accumulation (income or income from income becomes capital from creating reserves of income (unapplied income remains applicable as income)
Existing statutory restrictions on accumulation are abolished
New restrictions for charitable trusts only
- Unless the instrument is made by the Charity Commission or the Court, any trust or
power to accumulate ends
o after 21 years from the start of the power or duty to accumulate,
or, if so specified,
o on the death of the settlor, or
o on the death of one of 2 or more settlors
NB Income arising after the end of the period is applicable for the purposes or person for whom
it would be applicable if there were no accumulation provision
Sections 15 - 16 Application of statutory provisions
New law applies to
- inter vivos instruments taking effect on or after 06/04/10, but
- special powers of appointment only if created by an instrument taking effect on or after
06/04/10 and
- wills only if executed on or after 06/04/10
1964 Act
- does not apply to instruments taking effect on or after 06/04/10 but
- still applies to
o instruments taking effect before 06/04/10
o wills executed before 06/04/10
o special powers of appointment created by instruments taking effect before
06/04/10
Sections 17-24 General provisions
The rule does not bind the Crown
Limit on duration of anomalous trusts (21 years) remains
Where trust is created otherwise than by instrument, the same provisions apply mutatis
mutandis
‘Power of appointment’ includes a discretionary power to create or to transfer a beneficial
interest
‘Relevant pension scheme’ means an occupational, personal or public service pension
scheme
‘Will’ includes a codicil and takes effect on testator’s death
Act extends to England and Wales only
Conclusion
The Act greatly simplifies the law, removing some of its present diversity. The Act is helpfully
expressed in plain and economical language. It should make life easier for trusts and estate
practitioners – and for law students. But close attention to its provisions is required in the case of wills and trusts executed before 6 April 2010 and powers of appointment derived from trusts
created before that date.
March 2010
Radcliffe Chambers
11 New Square, Lincoln’s Inn WC2A 3QB DX 319 LDE
fquint@radcliffechambers.com
Direct tel: 020 7692 2064