How time flies

01 May 2013 Martyn Gowar

How time flies

Martyn Gowar ponders the rule against perpetuities.

Now, I don’t want to rub this in, but I am writing this at a conference in Hawaii, while watching whales from my bedroom window! But I have just been at a lecture about the fascinating story of the trusts that own so much of the Hawaiian Islands, as portrayed in the film The Descendants, with George Clooney. Our lecturer was a Hawaiian trusts and estates professor who advised on the legal accuracy of what was portrayed. The plot turned on the reality that these trusts are all coming to an end because of the operation of the rule against perpetuities.

I never understood the application of the rule very well, despite being taught it at university by one of the draftsmen of the Perpetuities and Accumulations Act 1964, who knew so much about it – and had written the textbook on it – that we got lost in the detail. But the 1964 Act and ‘wait and see’ were a great relief, and I hope that, by now, I do get it, and the Perpetuities and Accumulations Act 2009 as well.

When drafting trusts, the end date is so far in the future that it is the least of our worries. But the Hawaiian experience reminds us forcefully that you cannot take your eye off the ball.

In very old UK trusts, by which I mean those set up before 1964, have you any note of when the trust comes to an end? Is it dependent on a royal lives clause and, if so, who are the lives in being? The Queen has, of course, been an icon for her longevity as well as her other virtues, but other members of her family have fallen by the wayside. Have you checked? Similarly, if the lives in being were the family members alone, have you kept an eye on when the last of those alive at the date of the deed died, so you know when the 21-year period starts to run?

Most UK trusts will date from after 1964. After the passing of the 1964 Act, the 80-year perpetuity period was soon popular because it gave clarity and avoided the necessity of the exercise I have just described. Trusts were commonly set up in those years and it was the high point of the discretionary trust in the UK because those trusts were so effective at avoiding estate duty on the death of any of the beneficiaries. The first attempts to curtail their effectiveness came in the Finance Act 1969, but were thought to be unsatisfactory, so it was the Finance Act 1975 that changed the rules dramatically and made discretionary trusts much less attractive. By then, however, a large number of trusts were in existence.

But I come back to Hawaii, and remind you that it is now nearly 50 years since the 1964 Act came into operation. All too soon, the closing date for trusts that used the 80-year period will be upon practitioners. In terms of planning for families with a long- term vision, this might be a moment to take a look at what the future may hold, and start to think whether the shape of the family vision is becoming clearer, as children born today will be starting families of their own (as the age of parenting rises a little) at about the time the trust expires. And those senior family members and advisors who can remember what the trust was set up to do might be asked before it is too late.

Authors

Martyn Gowar

CPD Reflective Learning