Perpetuity

Question 1

Express perpetuity clauses

Answer 1

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.
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. (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.
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 2

Legal perpetuity rules

Answer 2

There are two different perpetuity rules which apply in different circumstances:
Perpetuity 7
(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 3

The statutory perpetuity rule: The rule against remoteness of vesting

Answer 3

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.)
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.
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 4

Common law perpetuity rule: The rule against inalienability

Answer 4

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).
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.
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 5

Express perpetuity clauses

Answer 5

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.