The Perpetuities and Accumulations Act 2009
The Perpetuities and Accumulations Act 2009 (the 2009 Act) came into force on 6 April 2010. The 2009 Act makes substantial alterations to the law of perpetuities and excessive accumulations. However, in the main those changes are prospective only. It will therefore be necessary for practitioners to understand not only the new regime but also the pre-existing law. This article will therefore consider the evolution of the law relating to perpetuities and accumulations, including the changes which have been made by the 2009 Act and the extent to which the old law is still applicable. The article will also consider the practical effects of the 2009 Act, in particular with relation to the drafting of wills and trusts.
A brief summary of the effects of the 2009 Act
The main effects of the 2009 Act are:
- For settlements made and wills executed on or after 6 April 2010 the perpetuity period will be 125 years and no other period.1
- The rule against perpetuities is effectively abolished except insofar as it affects interests which arise under private trusts. It will not therefore apply to easements, options or rights of pre-emption or other commercial arrangements.
- The existing exclusions from the rule against perpetuities for pension schemes are extended.
- An accumulation period in a private trust may extend for the whole of the perpetuity period and is not limited to 21 years.
- Charitable trusts may accumulate income for 21 years or for the life of the settlor.
- Where an existing settlement has a perpetuity period which is governed by a life (or lives) in being then the trustees will have a (fiduciary) power to adopt a perpetuity period of 100 (not 125) years but only where it is ‘difficult or not reasonably practicable’ to ascertain whether the lives have ended.2
The old law: Pre-1964
The position prior to the coming into force of the Perpetuities and Accumulations Act 1964 (‘the 1964 Act’) on 16 July 1964 is governed by the common law rule against perpetuities.3 The classic statement of the rule is found in Gray on The Rule Against Perpetuities:4
‘No interest is valid unless it must vest, if it vests at all within the period of a life in being at the date of the gift, plus 21 years.’5
Any lives could be selected to be the basis of the perpetuity period. There was no need for the lives to be connected with the settlement as long as they were reasonably ascertainable.6 Lives could not be selected under the common law if it was impractical to ascertain those lives. This was considered closely in Re Villar.7 T died on 6 September 1926, leaving a Will made in 1921 and confirmed in a codicil made in 1926. He left funds on trust with a perpetuity period extending 20 years from the day of the death of the last survivor of all the lineal descendants of Her late Majesty Queen Victoria ‘who shall be living at the date of my death’. There was evidence from Portcullis Pursuivant at Arms stating that on 6 September 1926 there were about 120 descendants of Queen Victoria in many of the countries of Europe. It was not at all clear whether the children of Tsaritsa Alexandra of Russia were living. The trust was held to be valid as ascertaining the specified period was merely expensive, not impracticable.
An interest is void under the rule against perpetuities if at the date of the instrument it is possible that it might not vest within a life in being plus 21 years, even if it does vest within that period.8 The common law rules were developed by the Court to prevent the ownership of property (particularly land) being tied up for too long a period – the so-called ‘Dead Hand Rationale’.9
It was argued in favour of the common law rule that it promoted certainty by deciding at the time a gift was made that it was immediately invalid.10 However as Maudsley explains in The Modern Law of Perpetuities11 the common law rule did not establish such certainty because it permitted contingent gifts where the contingency was specified to occur or not within the perpetuity period. It was unclear until the contingency occurred or the period for its occurrence ended whether the contingent gift would take effect. To that limited extent the pre-1964 law included a ‘Wait and See’ principle.
The pre-1964 law not only caused an interest which might vest outside the perpetuity period to be void but also all ulterior gifts to be void.12
The pre-1964 rules were problematic and caused injustice. Very many gifts failed because they were specified to be for such of the children of a living person as should attain an age greater than 25 years. Under s 163 Law of Property Act 1925 an age specified to be greater than 25 years will be read as if it stated 21 years and was therefore valid.13 In respect of class gifts, each member of the class had to obtain a vested interest within the perpetuity period in order for the gift to be valid. Furthermore gifts to A for life, then to A’s widow for life and in remainder for A’s children as should be living at the death of A and A’s widow were invalid in respect of the gift to the children because they might vest only on the death of A’s widow and A’s widow might not be a life in being at the date of the gift.14
The common law rule against perpetuities was held to affect interests other than those under trusts. For example in Dunn v Blackdown15 it was held to apply to easements. Similarly the common law rule against perpetuities applies to options where the time for exercise is in the future.16
At common law the period for which it was permissible to accumulate income in a trust was the perpetuity period.17 The rule against excessive accumulations is entirely statutory and was introduced by the Accumulations Act 1800. The 1800 Act was a political overreaction to Thellusson v Woodford (‘Thellusson’s Case’).18 In that case the previously stated common law rule that the accumulations could be made throughout the whole of the perpetuity period was confirmed.
Peter Thellusson, a well-known Swiss banker of the time, left a Will made in 1796. After having made provision for his family, Thellusson left his residuary estate (some GBP600,000 – a very substantial amount of money for the time) to be held on trust to accumulate income during the lives of all his sons, grandsons and great-grandsons living at the date of his death. On the death of the last survivor the fund was directed to be split equally between the three eldest living male issue of his sons and if there were none to the Crown. The Will was challenged by Thellusson’s children and widow.
Lord Eldon could not find any economic justification for limiting accumulations made within the perpetuity period.19 However there was significant contemporary criticism20 of the direction to accumulate included in the trust of residue and concern that too much wealth and therefore power could be accumulated in one hand and that this could endanger the economy of the whole country.21 Perhaps partly in view of the fact that Thellusson was foreign, Parliament (of which Thellusson’s three sons were members)22 introduced the 1800 Act to prevent accumulations throughout the perpetuity period. The provisions of the 1800 Act were that a person wishing to permit or direct accumulations must specify one (and only one) of the periods for accumulation permitted by the 1800 Act. The provisions of that Act are substantially reproduced by s 164 Law of Property Act 1925. The accumulation periods permitted are:
- the life of the grantor or settlor
- a term of 21 years from the death of the grantor, settlor or testator
- the duration of the minority (or respective minorities) of any person living or en ventre sa mère at the death of the grantor, settlor testator, or
- the duration of the minority (or respective minorities) of any person who under the limitation of the trust or will if of full age would be entitled to the income directed to be accumulated.
The Perpetuities and Accumulations Act 1964
The 1964 Act permitted the settlor or testator to select a period not exceeding 80 years23 to be the perpetuity period for a trust. It was therefore no longer necessary to rely on a perpetuity period based on a life in being at the time when the trust came into effect. However it was still possible to use a life in being as the basis of a perpetuity period, for example, a royal lives clause; and if no perpetuity period was specified in the interest then under the common law principles the lives in being would be those referred to in the trust or will itself. Section 3(4)(a) excluded any class of specified lives whose inclusion as the basis of the perpetuity period would make it ‘impracticable’ to ascertain the date of death of the survivor.
It should be noted that a specified perpetuity period up to 80 years is applicable only to gifts which are valid under the common law rule against perpetuities. (The gift must vest within the specified perpetuity period; if the gift might not vest within the perpetuity period specified that perpetuity period is no longer relevant). Gifts which might not vest within the specified perpetuity period and therefore would otherwise be void may be saved by the ‘Wait and See’ provisions. The ‘Wait and See’ provisions are governed by an independent perpetuity period which must be based on a life in being plus 21 years, rather than the specified perpetuity period. However not all lives can be lives in being for the purpose of the ‘Wait and See’ provisions. There is a statutory list of lives specified for the purpose of those provisions.24
Where gifts are void under the common law rule against perpetuities, s 3(1) allows persons interested in the trust to ‘Wait and See’ whether the interests vest during the perpetuity period. If it becomes apparent that an interest will not vest during the perpetuity period this will not affect the validity of anything previously done in relation to that interest (i.e. by way of advancement, application of intermediate income or otherwise).25 Under s 4 gifts which would have been void by contagion as ulterior to gifts void for remoteness under the common law rule against perpetuities are accelerated on the failure of a prior gift.
The effect of the 1964 Act in relation to gifts to the children of a person attaining an age greater than 25 years does less violence to the original provisions of the settlement or will than that done by s 163 Law of Property Act 1925. It is only if the gift fails to vest in the perpetuity period that the vesting age will be read down to 21.
In respect of class gifts, if the ‘Wait and See’ rules and the age reduction rules do not save the gift then it may be saved under ss 4(3) and 4(4) of the 1964 Act. The gift will be valid in respect of those members of the class who do obtain a vested interest within the perpetuity period and void only in respect of those who do not obtain such a vested interest. Under s 4(5) it is permissible to apply intermediate income to the contingent members of the class. It is important to remember that some people who might at first glance be able to take under a class gift will not in fact be able to attain an interest because the class has already closed under the general class-closing rules.26
In respect of the unborn widow(er) problem seen in Re Frost s 5 provides a solution, namely that at the end of the perpetuity period the disposition shall be treated (if in so doing the gift will be saved) as if it had been limited to vest at the end of the perpetuity period. A simple ‘Wait and See’ solution would only have permitted to take those who had attained a vested interest at the end of the perpetuity period. However s 5 causes the trust or will to be read as if the gift had been said to vest within the perpetuity period.
Section 13 of the 1964 Act amended s 164 Law of Property Act 1925 to include two further periods which could be specified for accumulations namely:
- 21 years from the making of the disposition, and
- the minority (or respective minorities) of any person in being at the date of the disposition.
The 2009 Act
The 2009 Act will apply in relation to settlements made and wills executed on or after 6 April 2010.27 Therefore wills which were drafted prior to 6 April 2010 will not be affected by the new rules. The 2009 Act will apply to an instrument made in exercise of a special power of appointment only if the instrument creating the power took effect after that date.28 Section 1 states when the rule will apply:
- Interests under a trust creating successive estates or interests.29
For example, where A leaves his residuary estate on trust for his widow B for life and thereafter for such of his children C, D and E as attain the age of 30 and if more than one in equal shares, the rule applies to the interests of C, D and E.
Rights of reverter on determination of a determinable fee simple and rights arising under a resulting trust on the determination of a pre-existing determinable interest.30
For example, where A leaves a property in fee simple to his daughter B until she should bear a son, the rule applies. Under s 10 if the daughter is living at the end of the perpetuity period (125 years) and has not borne a son her interest becomes absolute.
- Interests under a trust which are subject to a condition precedent.31
For example, if A leaves property on trust for his son B if he should run a mile in less than four minutes, the rule applies to B’s interest. If B fails to run a mile in under four minutes in the 125-year period his interest will be void for remoteness.
Interests under a trust which are subject to a condition subsequent where:
- any right of re-entry is exercisable if the condition is broken,32 or
- any right equivalent to re-entry is exercisable in respect of property other than land if the condition is broken.33
For example, if A leaves property on trust for his grandsons provided that none of them obtains a degree from the University of Hull before the age of 60, but if one of his grandsons does so the property shall pass to charity B. The rule against perpetuities affects the grandson’s interest and B’s interest so that if none of A’s grandchildren breach the condition in the following 125 years B’s interest will be void for remoteness.
- Successive interests in personal property created by will under the doctrine of executory bequests.
Since 1925 successive interests in land can only be created under a trust. It is not possible to create successive legal interests in land. There is no corresponding prohibition on successive legal interests in chattels under the doctrine of executory bequests. The common law rule against perpetuities applied to such legal interests34 and continues to do so under the 2009 Act.35
- Powers of appointment.36
Section 2 specifies exceptions to the rule against perpetuities.
- A gift over from one charity to another.29
- An interest or right arising under a relevant pension scheme.37
Clearly the most important application of the rule against perpetuities will continue to be in relation to successive gifts made in an inter vivos settlement or will and powers of appointment contained within them. It will no longer apply to commercial interests such as options or easements so long as a trust is not used. Gifts over from one charity to another are exempt, as are relevant pension schemes. These include schemes which are not approved schemes and therefore the availability of tax relief is not a criterion for whether a scheme will benefit from the relaxation of the rule against perpetuities. Under s 3 the Lord Chancellor is given the power to provide that the rule against perpetuities is not to apply in cases of a specific description or if specified conditions are satisfied. Under s 4 certain exceptions are abolished.38
A perpetuity period of 125 years and no other is created by s 5. It is therefore no longer possible to specify a life in being as the basis of a perpetuity period and therefore it is no longer possible to draft a royal lives clause. The period will apply whether or not it is specified. The perpetuity period begins when the settlement, will or other instrument takes effect.39 If a special power of appointment is exercised the perpetuity period will run from the date of the instrument which creates the power (rather than from the date it is exercised).40 The foregoing applies unless the instrument or exercise of a power is in relation to a relevant pension scheme which nominates benefits or exercises a power of advancement. In that case the perpetuity period runs from the date when the person concerned became a member of the scheme.41
The ‘Wait and See’ rule is preserved by s 7 so that interests are treated as being valid until it is shown that they cannot vest within the perpetuity period and actions taken in the meantime on that basis are valid. Section 8 excludes members of a class to avoid remoteness (as under s 4 Perpetuities and Accumulations Act 1964). As under s 6 of the 1964 Act, s 9 of the 2009 Act causes the acceleration of any gift ulterior to and dependant on an interest which is void for remoteness. As a lives-in-being perpetuity period is no longer permissible the 2009 Act does not reproduce the age-reducing rules in s 4 of the 1964 Act as these are no longer necessary.
Under s 10(1) if a determinable fee simple has not determined within the perpetuity period the fee simple becomes absolute. Under s 10(2) if a determinable interest in property (other than land) has not determined within the perpetuity period so as to give rise to a resulting trust the determinable interest becomes absolute at the end of the period.
In general the 2009 Act is prospective but in one important respect it is retrospective. Section 12 gives trustees of existing trusts the power to adopt by deed a perpetuity period of 100 years (and no other period) if the existing perpetuity period is based on a specified life or lives in being if:
‘the trustees believe that it is difficult or not reasonably practicable for them to ascertain whether the lives have ended and therefore whether the perpetuity period has ended’.42
The above power is fiduciary and must be exercised in the interests of the beneficiaries of the trust. Any exercise of the power is irrevocable. The power could be useful, for example, where there is a royal lives clause and the issue have all died apart from one and it is not known if that one is living or not. For example, there used to be difficulties in the past where the royal lives clause specified the descendants of Queen Victoria, one of whom was Princess Anastasia as seen in Re Villar.
It is important to note that the power will not aid trustees if they know that a life in being has died but are unable to ascertain when; or if the trustees are aware that at least one of the specified persons is still living or died less than 21 years ago. Furthermore s 12 does not apply where if it would be difficult to trace lives for the purposes of the ‘Wait and See’ provisions of the Perpetuities and Accumulations Act 1964.
The duration of non-charitable purpose trusts are unaffected by the 2009 Act.43 There are various genuine exceptions to the principle that private trusts must have beneficiaries. Trusts have been upheld for the following purposes:
- The erection and maintenance of tombs.44
- The maintenance of specific animals.45
- The promotion of foxhunting46 (although presumably such a trust would now be void as promoting an illegal purpose following the Hunting Act 2004).
- The saying of private masses.47
- These trusts, which have been described as ‘troublesome, anomalous and aberrant’48 have a perpetuity period which continues to be limited to a life or lives in being plus 21 years. Most are only for 21 years as there is usually no relevant life in being. It is not thought that the relevant life in being can be that of the animal.49
The various restrictions on accumulations referred to above in the Law of Property Act 1925 and s 13 Perpetuities and Accumulations Act 1964 will cease to have effect in relation to settlements made on or after 6 April 2010 so that the common law as declared by Thellusson’s Case is re-established by s 13 of the 2009 Act. Section 14 creates a restriction on accumulations in respect of charitable trusts. Such charitable trusts may only accumulate income for 21 years from the date the trustees had the power to or were directed to accumulate income50 or for the life of the settlor or settlors.51 The restriction on accumulations does not apply if the Court or the Charity Commission provide for a different period of accumulation.29
Practical effects of the 2009 Act
For drafting purposes it will no longer be necessary to specify a perpetuity period for new settlements. Any attempt to specify a period other than 125 years will be ineffective. Trusts should however still include a trust period of 125 years or less in which all interests should vest and after which no powers may be exercisable.
It will be possible to include a power or a duty to accumulate income throughout the 125-year perpetuity period (unless the trust is charitable); however, the settlor or testator should consider whether or not such a provision is desirable. When drafting a disabled person’s interest trust, an extended accumulation period for the life of the disabled person is likely to be desirable.
As wills are only affected by the 2009 Act if they are executed on or after 6 April 2010 testators whose wishes could be better served with longer perpetuity or accumulation periods should alter their wills. This could be done by republishing the will using a codicil to change the material provisions.
Trustees of trusts which have a perpetuity period governed by a life in being which is difficult to ascertain should consider whether they have power to elect for the 100-year period. If they do they can exercise the power by deed. If the decision to exercise the power is momentous the trustees may wish to protect themselves by asking the Court to bless their decision in advance under Part 64 Civil Procedure Rules.
Where there is a trust which can be varied under the Variation of Trusts Act 1958 it may be possible to vary it to include a fresh perpetuity period of 125 years following Re Holt.52 This would have the potentially beneficial consequence of extending the life of the trust and postponing exit charges to inheritance tax (IHT) and charges to capital gains tax (CGT) under s 71 Taxation of Chargeable Gains Act 1992.
The 2009 Act is clearly a welcome simplification to the rules regarding perpetuities and accumulations. The 125-year period is reasonably long and is preferable to the use of a life or lives in being clause because such a clause may cause it to be expensive or difficult to ascertain when the period has ended. Therefore the ability for trustees to ‘opt-in’ to the 100-year period in existing trusts is also a useful power. The rule against excessive accumulations has been economically unjustifiable for over 200 years and its removal and re-establishment of the common law under Thellusson’s Case is an improvement. Nevertheless as the 2009 Act is largely prospective and there are still trusts which will fall to be dealt with under the pre-1964 rules, practitioners will have to struggle with three complex regimes dealing with perpetuities and accumulations for some time to come.
- 1S 5(1).
- 2S 12.
- 3What I shall refer to as the rule against perpetuities R M Maudsley refers to as the ‘Modern Rule Against Perpetuities’ in his scholarly monograph The Modern Law of Perpetuities (1979). Maudsley distinguishes the Modern Rule Against Perpetuities from what he describes at page 30 as the ‘Old Rule Against Perpetuities’ or the rule in Whitby v Mitchell (1889) 42 Ch D 494, which prevented the creation of a settlement by giving a series of life estates from father to son for generations and which was abolished by s 161 Law of Property Act 1925.
- 4R. Gray (ed), The Rule against Perpetuities (Boston, Mass., Little Brown & Co., 1942) para 201.
- 5For exceptions to the general rule see Maudsley chapter 3 ‘The Common Law Rule in Special Situations’.
- 6Thellusson v Woodford (1799) 4 Ves Jr 227; (1805) 11 Ves 122 (‘Thellusson’s Case’).
- 7 Ch 471.
- 8The rule was established by the Duke of Norfolk’s Case (1685) 1 Vern 164. A life in being includes a life which was en ventre sa mère at the time of the settlement, Cadell v Palmer (1883) 1 Cl & F 372. It should of course be emphasised that in order not to offend the rule against perpetuities a gift must merely vest in interest within the perpetuity period; there is no need for the interest to vest in possession within that time. A gift vests in interest when the donee is ascertained and ready to take and any condition precedent to his gift must also have been satisfied.
- 9See for an example in favour of limiting the power of previous generations Lewis M Simes Public Policy and the Dead Hand (Ann Arbor, Michigan, University of Michigan Law School,1955) pp 58 – 63 but cf. AI Ogus (1986) 36 UTLJ 187, 215, 216.
- 10(1960) 80 LQR at 492.
- 11Page 36.
- 12Re Hubbard’s Will Trusts  Ch 275.
- 13S 163 has been repealed in respect of instruments coming into effect after 15 July 1964 but not in respect of an appointment made after 15 July 1964 made under an instrument created before 15 July 1964 whenever exercised, s 15(5) Perpetuities and Accumulations Act 1964.
- 14Re Frost (1889) 43 Ch D 246. However, such a gift could be made by making a gift to A for life then to any spouse he may marry for life with remainder to the children of their marriage because the gift to the children is vested in interest (although not in possession) on A’s death, see Re Garnham  2 Ch 413.
- 15 Ch 433.
- 16However if no time is specified for the exercise of the option the Court will infer that the option must be exercised within a reasonable period, Re Atkins’ WT  2 All ER 1.
- 17Thellusson’s Case p 338.
- 18See the Law Commission’s report into The Rules Against Perpetuities and Excessive Accumulations (1998) para 1.12.
- 19(1805) 11 Ves 112, 147. In fact the amount of the fund was much depleted by legal costs so that Lord Rendlesham and Charles Sabine Augustus Thellusson each received only about £300,000 each, A B Schofield (1965) 62 L S Gaz 613.
- 20For example from Gentleman Magazine, see Schofield (1965).
- 21See submissions made on behalf of the plaintiffs p 114.
- 22Law Commission’s report p 113.
- 23S 1.
- 24The statutory list of lives which can be used under the ‘Wait and See’ provisions is contained in s. 3(4) and (5) namely: the settlor, the beneficiaries or potential beneficiaries, the objects of special powers of appointment, the parents or grandparents of beneficiaries or potential beneficiaries (if born), the donee of a power, option or other right and the holder of a prior interest. If there are no statutory lives a period in gross of 21 years is permitted.
- 25In fact the effect of s 3(1) is that the common law rule against perpetuities is abolished because as Maudsley states at p 121 if an interest must vest within the perpetuity period it will vest within the period (if it vests at all) and either the contingency will have arisen within the period or it will not. The fact that the gift is invalid under the common law rule against perpetuities will not make any difference as the contingency will not have arisen in time.
- 26See Andrews v Partington (1791) 3 Bro CC 401.
- 27S 15 and Perpetuities and Accumulations Act 2009 (Commencement) Order 2010, SI 2010/37.
- 28S 15(1)(b).
- 29 a b c Sub-section 2.
- 30S 1(7)(b).
- 31Sub-section 3
- 32Sub-section 4(a).
- 33Sub-section 4(b).
- 34Re Blackhouse  2 Ch 51 and s 1(6).
- 35S 1(5).
- 36Sub-section 6. Section 11 defines special powers of appointment as powers that cannot be used inter vivos to transfer all the property subject to the power to the donee of the power without the consent of any other person.
- 37Sub-section 3. However the nomination of benefits under a relevant scheme and exercises of powers of advancement under a scheme are subject to the rule, see 2(3).‘Relevant pension scheme’ is defined to mean an occupational pension scheme, a personal pension scheme or a public services scheme, all within the meaning given by ss 1 and 181 Pension Schemes Act 1993. The definition is not dependent on tax status and the exclusion therefore applies to both ‘approved’ and ‘unapproved’ schemes.
- 38Under s 121(6) Law of Property Act 1925 concerning certain powers and remedies, s 162 Law of Property Act 1925 and s 163 Pension Schemes Act 1993, which limited the pension scheme exception to certain pension schemes whereas now it applies to all pension schemes.
- 39S 6(1).
- 40S 6(2).
- 41S 6(3).
- 42S 12(3).
- 43S 18.
- 44Mitford v Reynolds (1848) 16 Sim 105, Mussett v Bingle  WN 170, Pirbright v Salwey  WN 86, Re Dean (1889) 41 Ch D 552, Re Hooper  1 Ch 28.
- 45Pettingall v Pettingall (1842) 11 LJ Ch 176.
- 46Re Thompson  Ch 342.
- 47Re Hetherington  Ch 1.
- 48Re Endacott  Ch 232 per Harman LJ at 250.
- 49The point was not taken that the animal’s life could be a relevant life in Re Dean.
- 50Sub-sections 3 and 4.
- 51Sub-section 5. It is not entirely clear how this provision will work in relation to joint settlors. It is possible that joint settlors will be treated as having made two different settlements with two different accumulation periods or that the accumulation period will last until the death of the survivor.
- 52 1 Ch 100.
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