Perpetuity

Question 1

What is a perpetuity clause?

Answer 1

The rule restricts the time period within which future interests in property must vest.

With the exception of charitable purpose trusts, which can last indefinitely, trusts cannot be permanent arrangements.

Question 2

What is an express perpetuity clause?

Answer 2

When the trust instrument to expressly limit the duration of the trust.

• A well-drafted trust instrument will ensure that the trustees have a mechanism for
  disposing of any trust property that remains at the end of this period.
• In the case of complicated trust arrangements there will often be a gift-over clause providing for the property to be distributed to a particular beneficiary or beneficiaries.

Question 3

What are legal perpetuity rules?

Answer 3

a) The rule against remoteness of vesting.

b) The rule against inalienability

Question 4

1st legal perpetuity rule:

What is the rule against remoteness of vesting?

Answer 4

Requires that a person (or charity) must obtain a vested
interest in the trust property within a recognised ‘perpetuity period’.
Anything not vesting within the period is void.

ps.. this period is 125 years MAX.

DOES NOT apply to non-charitable purpose trusts.

Question 5

When do we use the rule against remoteness of vesting?

Answer 5

The statutory perpetuity period is designed to accommodate common uses for trusts

i.e. A trustee holds property on trust for A for life, remainder to B.

Question 6

What is the ‘wait and see’ rule within the rule against remoteness of vesting?

Answer 6

The trust can subsist until it becomes apparent that the interest cannot vest within the perpetuity period. Anything done before this will remain valid.

i.e. A trustee holds property on trust for A for life, remainder to B if B survives A - It is not certain that B’s interest will vest as B may die first (wait and see)

Question 7

What is the ‘class closing’’ rule within the rule against remoteness of vesting?

Answer 7

Can save a trust by excluding objects who might otherwise cause the trust to fail because their interest would vest outside the perpetuity period.

i.e. a trust for A’s children and grandchildren - could take many years for them to all be born so need the ‘class closing’ rule to limit the class of beneficiaries.

Question 8

2nd legal perpetuity rule:

What is the rule against inalienability?

Answer 8

This rule no longer applies to most trusts but remains relevant to non-charitable purpose trusts.

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).

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.

Question 9

The link between the rule against inalienability and express perpetuity clause?

Answer 9

To ensure their validity, all non-charitable purpose trusts should include an express
perpetuity clause.

Things like..
- Expressly state the trust should last 21 years.
- ‘as long as the law allows
- express that it should only begin at the date of death of a named person.