Chapter 7: Perpetuity

Question 1

1. Introduction to perpetuity

Answer 1

In this chapter we will look more closely at the perpetuity rules applicable to trusts.

Question 2

1.1 Trusts as a temporary arrangement

Answer 2

With the exception of charitable purpose trusts, which can last indefinitely, trusts cannot be
permanent arrangements. They are a temporary way of dealing with property. Some trusts are
intended to last for only a very short period of time while others (such as trusts for minors) may last many years.

Question 3

1.1 Trusts as a temporary arrangement

Answer 3

Where the beneficiaries of a trust have vested interests in the trust property, the rule in Saunders v
Vautier (covered in the chapter on ‘Beneficial entitlement’) provides a mechanism for bringing the trust to an end, allowing the beneficiaries to take full control of the property.

Question 4

1.1 Trusts as a temporary arrangement

Answer 4

What about trusts under which the objects do not have vested interests, such as discretionary trusts or trusts which give rise to contingent interests? Even if the rule in Saunders v Vautier could theoretically be exercised by all the potential objects, in practice this is very unlikely. In the case of
a discretionary trust, the trustees are obliged to exercise their discretion within a reasonable timeframe, limiting the duration of the trust

Question 5

1.1 Trusts as a temporary arrangement

Answer 5

But what about trust interests which are limited by a contingency? If the contingency is never satisfied, how is the trust brought to an end? And what about fixed trusts where property is to be divided between a fluctuating class of objects? When
are the trustees required to distribute the property?

Question 6

1.1.1 Express perpetuity clauses

Answer 6

Often a trust instrument will contain rules dealing with how and when the trust is brought to an end. It is good practice for a trust instrument to expressly limit the duration of the trust. You may see this described in the trust instrument as the ‘trust period’ or similar. In cases where a class of objects fluctuates, the class will close at the end of this period and the property distributed
between the people who fall within the class at that time.

Question 7

A well-drafted trust instrument

Answer 7

Will ensure that the trustees have a mechanism for disposing of
any trust property that remains at the end of this period. (For example, if a contingency remains
unsatisfied.) In the case of complicated trust arrangements (which may involve a mixture of trusts and powers) there will often be a gift-over clause providing for the property to be distributed to a
particular beneficiary or beneficiaries. It is common for the ultimate recipient of the gift-over to be a charity, in case there are no other beneficiaries at the end of the trust period.

Question 8

1.1.1 Express perpetuity clauses

Answer 8

But what if there is no express limitation on the trust duration? Could it go on indefinitely? With
the exception of charitable trusts, the answer to this question is no. It is not in the public interest for property to be tied up on trust indefinitely. The law therefore limits the duration of trusts by means of rules known as the perpetuity rules. An express clause cannot extend a trust beyond the relevant legal perpetuity period. Often the express clause will reflect the maximum legal perpetuity period, unless the settlor wants the trust duration to be shorter than this.

Question 9

1.1.2 Legal perpetuity rules

There are two different perpetuity rules which apply in different circumstances:

Answer 9

(a) The rule against remoteness of vesting
(b) The rule against inalienability
Broadly, the rule against remoteness applies to trusts with people or charities as their objects. It is
important to consider this rule when establishing or administering a trust that does not immediately give rise to vested interests in the trust property (such as discretionary trusts, trusts that contain contingencies and fixed trusts with a fluctuating class of objects). The rule against inalienability is a more limited rule which applies to non-charitable purpose
trusts.

Question 10

1.2 The statutory perpetuity rule: The rule against remoteness of vesting

Answer 10

The rule against remoteness of vesting is a statutory rule which requires that a person (or charity)
must obtain a vested interest in the trust property within a recognised ‘perpetuity period’. By s 5(1)
Perpetuities and Accumulations Act 2009 this period is 125 years although it is possible for a trust
instrument to limit the duration of the trust to a shorter period. (As noted above, it is not possible
for a trust instrument to extend the 125-year perpetuity period.)

Question 11

1.2 The statutory perpetuity rule: The rule against remoteness of vesting

Answer 11

Any interest under a trust which does not vest within the statutory perpetuity period is void. This
need not be clear from the outset of the trust. Section 7 contains a ‘wait and see’ rule which means that the trust can subsist until it becomes apparent that the interest cannot vest within the perpetuity period. Anything done before this will remain valid

Question 12

1.2 The statutory perpetuity rule: The rule against remoteness of vesting

Answer 12

Section 8 also contains ‘class closing’ rules which can save a trust by excluding objects who might otherwise cause the trust to fail because their interest would vest outside the perpetuity period.

Question 13

1.2.1 Remoteness of vesting examples

Answer 13

The perpetuity rules will often be relevant when a trust contains conditions or powers particularly
those involving a series of successive interests or a wide class of potential objects. The statutory perpetuity period is, however, designed to accommodate common uses for trusts.

Question 14

Consider the following examples:

Answer 14

(a) A trustee holds property on trust for A for life, remainder to B.
(b) A trustee holds property on trust for A for life, remainder to B if B survives A.
(c) A trustee holds property on trust for A (age 2) for life, the remainder to be divided equally
between A’s children and grandchildren.
(d) A trustee holds property on trust for A for life, the remainder to be divided equally between
such of A’s children and grandchildren as are living at the date of A’s death.
(e) A trustee holds property on trust for A for life, remainder to a named charity.
(f) A trustee holds property on trust for the first of the settlor’s lineal descendants to obtain a
first-class law degree.

Question 15

1.2.2 Examples: Life interest trusts

Answer 15

The statutory perpetuity period is deliberately long enough to prevent simple life interest trusts like the first two examples from failing.

Question 16

Example: Vested interests

Answer 16

A trustee holds property on trust for A for life, remainder to B. There is no problem with perpetuity in this case as B has a vested interest from the outset.

Question 17

Example: Contingent capital interest

Answer 17

A trustee holds property on trust for A for life, remainder to B if B survives A. In this case B has a contingent interest so the perpetuity rules are technically relevant, but are
extremely unlikely to be problematic. It is not certain that B’s interest will vest as B may die first. The ‘wait and see’ rule applies, as the trust could fail for perpetuity, but only if A lives more than 125 years after the trust is created

Question 18

Example: Contingent capital interest

Answer 18

What the rule is intended to prevent is the sort of situation where a settlor leaves a series of neverending life interests for their descendants, with nobody obtaining a vested interest in the capital (and therefore no chance of collapsing the trust).

Question 19

Example: Equal distribution of capital amongst members of indeterminate class

Answer 19

A trustee holds property on trust for A (age 2) for life, the remainder to be divided equally between A’s children and grandchildren.

Question 20

Example: Equal distribution of capital amongst members of indeterminate class

Answer 20

At the date the trust is created, only A has a vested interest in the trust property (and only in the
income). When A dies, any of their children and grandchildren who have already been born will have vested interests. However, there may be grandchildren yet to be born. As this is a fixed trus in equal shares, the trustee cannot divide the property between the objects until they are all
ascertainable. It could take man years before it becomes impossible for more grandchildren to be born (however unlikely this may be).

Question 21

Example: Equal distribution of capital amongst members of indeterminate class

Answer 21

Rather than the trust failing, the class closing rules will apply to limit the class of beneficiaries to A’s children and grandchildren, if any, who are alive as at the end of the perpetuity period.

Question 22

Example: Equal distribution of capital amongst members of indeterminate class

Answer 22

The problem with this provision is not actually perpetuity but poor drafting. As we have already
seen, the wait and see rule allows a trust to subsist for up to 125 years, until it is clear how the property should be distributed.

Question 23

Example: Equal distribution of capital amongst members of indeterminate class

Answer 23

This means that at least some of the intended beneficiaries (ie A’s children) are practically unable
to make use of their interest under the trust. To avoid this problem, the trust should contain a provision limiting the objects. This next example solves the problem as it provides a date for the vesting of the remainder interest, ensuring that the beneficial interests fix as at A’s death

Question 24

Example: Equal distribution of capital amongst members of determinate class

Answer 24

A trustee holds property on trust for A for life, the remainder to be divided equally between such
of A’s children and grandchildren as are living at the date of A’s death.

Question 25

Example: Equal distribution of capital amongst members of determinate class

Answer 25

Only A’s children and grandchildren who are living at that date obtain an interest, allowing the trustee to immediately divide the property between them. Any children or grandchildren who die before A or are born after A’s death are not included in the class. The capital interests will therefore vest on A’s death. (This does not necessarily mean that the trust will come to an end at A’s death. This depends on the age of the beneficiaries, as discussed in the chapter on ‘Beneficial entitlement’ and the exercise of any powers of advancement, as discussed in the chapter on ‘Trustee powers and duties’.

Question 26

Example: Named charity as capital beneficiary

Answer 26

A trustee holds property on trust for A for life, remainder to a named charity. This provision also poses no problem from a perpetuity perspective. A has a vested interest in the trust income. The charity has a vested interest in the capital which will vest in possession once A
dies.

Question 27

Example: Named charity as capital beneficiary

Answer 27

The charity may take the form of a company or a charitable purpose trust. Even if it is a charitable purpose trust, there is no restriction on the length of time for which the trust can subsist. It can go on indefinitely and there is no problem with perpetuity.

Question 28

Example: Named charity as capital beneficiary

Answer 28

The practical difference between property vesting in beneficiaries and vesting in a charity is that
a trust with beneficiaries will be extinguished once the capital is distributed to the beneficiaries. In
contrast, capital which vests in charity trustees will continue to be held by the trustees and used
for those purposes unless the property runs out. If the trust fund is well-managed, the property may never run out so the trust will continue to subsist unless the purposes fail. This means that
charitable purpose trusts can exist indefinitely. As we saw earlier, there will also be no problem if the charitable trust does not go on indefinitely, because any surplus funds will be applied cy-près.

Question 29

Example: Contingent interest

Answer 29

A trustee holds property on trust for the first of the settlor’s lineal descendants to obtain a firstclass law degree. This provision could be more problematic from a perpetuity perspective. Although the condition
for obtaining a vested interest in the trust property is clear enough, it is unknown whether or when
that condition might be satisfied.

Question 30

The ‘wait and see’ rule

Answer 30

Will apply here, meaning that the trustee will hold the property on trust for up to 125 years. If a lineal descendant of the settlor does satisfy the condition in that time, they will be entitled to the trust property. If nobody obtains such an interest within 125 years, the trust
will come to an end.

Question 31

A well drafted trust instrument

Answer 31

Will set out what happens at the end of the perpetuity period but if
it is silent, there will be a resulting trust for the settlor or - more likely given the 125-year time period - the settlor’s estate.

Question 32

1.3 Common law perpetuity rule: The rule against inalienability

Answer 32

Before the implementation of the statutory perpetuity rules, there was a stricter common law perpetuity rule known as the against inalienability. This rule provides that assets cannot be tied up on trust for longer than the common law perpetuity period of a specified life in being plus 21 years (or just 21 years if no life in being is specified).

Question 33

Rule no longer applies to most trusts

Answer 33

This rule no longer applies to most trusts but remains relevant to non-charitable purpose trusts,
as the statutory rule does not apply to them. The rule against inalienability is applied strictly. It must be certain at the time the trust is created that it will come to an end within the perpetuity period, otherwise the trust will be void. The ‘wait and see’ rule does not apply.

Question 34

1.3 Common law perpetuity rule: The rule against inalienability

Answer 34

A drafter should therefore always include an express perpetuity clause limiting the duration of a
non-charitable purpose trust to the perpetuity period to ensure its validity. In the absence of such
an express clause, the trust will typically fail. Older case law upheld clauses which limited the duration of trusts in a general, imprecise manner. But there is no guarantee these cases would be followed today

Question 35

Example: Imprecise limitation of a trust period

Answer 35

For so long as the trustees can legally do so. In the older cases, clauses of this type were regarded as sufficient to limit the trust to the common
law perpetuity period of 21 years.

Question 36

Example: Imprecise limitation of a trust period

Answer 36

This example does not reflect best drafting practice. It is advisable to include a clause which explicitly limits the trust to the common law perpetuity period of 21 years (or a life in being plus 21 years). The perpetuity period can be extended by reference to a human life in being ie the 21-year period does not start to run until the person dies. The person does not need to be associated with the trust. Royal lives are often chosen as in the example below.

Question 37

Example: Royal lives clause

Answer 37

£5,000 to my trustees on trust to maintain my grave for a period not exceeding 21 years following
the death of the last surviving descendant of King Charles III who is alive at the date of my death.

Question 38

Example: Royal lives clause

Answer 38

It seems clear that animal lives cannot be used as lives in being. Lives means human lives. Although the case law is not consistent on this point, it is likely that a trust to maintain an animal for the rest of its life will be void because it cannot be said with certainty that the animal will definitely die (and the trust therefore come to an end) within the perpetuity period – even if this
may be highly likely.

Question 39

Example: Royal lives clause

Answer 39

Similarly, although it could be argued that a trust for the purpose of constructing a monument is
likely to end within 21 years (as the monument is likely to have been completed within that time) as
this is not certain it is advisable to include an express perpetuity period.

Question 40

1.3.1 Inalienability examples

Answer 40

Consider the following examples:
(a) A testator leaves £10,000 on trust in their will, the income from which is to be used to maintain
the grave of the testator.
(b) A testator leaves £10,000 on trust in their will, from which both the capital and income are to
be used to maintain the grave of the testator.
(c) A testator leaves £10,000 on trust in their will, from which both the capital and income are to
be used to maintain the testator’s pet tortoise.
(d) A testator leaves £10,000 on trust in their will, from which both the capital and income are to
be used to maintain the testator’s pet dog.
All of these purposes are capable of being the object of valid non-charitable purpose trusts but
they will all fail due to the rule against inalienability.

Question 41

Example: Maintenance of grave from income only

Answer 41

A testator leaves £10,000 on trust in their will, the income from which is to be used to maintain the grave of the testator. This trust is clearly void for perpetuity. Only the income from the trust fund is to be used for the
specified purpose, meaning that the capital will never be disposed of and the trust could go on forever.

Question 42

Example: Maintenance of grave from capital and income

Answer 42

A testator leaves £10,000 on trust in their will, from which both the capital and income are to be used to maintain the grave of the testator. Although this trust provides for the capital to be used as well as the income, it will still be void for
perpetuity because it is not clear when the capital will be used up. It is therefore not clear that it will come to an end within the common law perpetuity period of 21 years. For a trust like this to be valid, it must contain an express perpetuity period limiting its duration

Question 43

Example: Maintenance of tortoise from capital and income

Answer 43

A testator leaves £10,000 on trust in their will, from which both the capital and income are to be used to maintain the testator’s pet tortoise. Although this trust could be distinguished from the previous example on the basis that it will
eventually come to an end when the tortoise dies, it is not clear that this will be within the 21-year
perpetuity period. Indeed tortoises can live for a very long time! This trust would therefore be void.

Question 44

Example: Maintenance of dog from capital and income

Answer 44

A testator leaves £10,000 on trust in their will, from which both the capital and income are to be
used to maintain the testator’s pet dog. You might think that this example is different, on the basis that the dog is unlikely to live for longer than 21 years (particularly if it is already an older dog). Although the case law on this point is inconsistent, the courts tend to take a restrictive approach to the rule against inalienability and it is therefore highly likely that this trust would be void.

Question 45

1.3.2 Express perpetuity clauses

Answer 45

To ensure their validity, all non-charitable purpose trusts should include an express perpetuity
clause.
* A simple example would be to provide that the trust should last for 21 years.
* Another method that is sometimes used is an express perpetuity period for ‘as long as the law allows’. This would most likely be interpreted as the common law perpetuity period of 21 years
but for the sake of certainty it is preferable not to use this.
* To extend the perpetuity period, it is possible to provide that it should only start running at the death of a named person. It is common to use a Royal lives clause such as in the example
below

Question 46

1.4 Summary

Statutory rule against remoteness of vesting

Answer 46

The statutory rule against remoteness of vesting applies to trusts with people or charities as their objects.
* The statutory perpetuity period is 125 years. The trust property must vest in a person or charity before or at the end of that period.
* It does not need to be clear from the outset that the trust property will vest within 125 years. The ‘wait and see’ rule applies.
* The class closing rules apply at the end of the statutory perpetuity period

Question 47

The common law rule against inalienability applies to non-charitable purpose trusts:

Answer 47

• The common law perpetuity period is 21 years.
• It must be clear from the outset of the trust that it will come to an end within the common law perpetuity period. It is not possible to wait and see.
• The common law perpetuity period can be extended by reference to a life in being. A common way to do this is by way of a Royal lives clause.