Perpetuity

Question 1

What are the 3 rules against perpetuity?

Answer 1

1. Rule against remoteness of vesting
2. Rule against inalienability of capital
3. Rule against excessive accumulation of income

Question 2

What are the justifications for the rules of perpetuity?

Answer 2

Economic: rule to ensure wealth cannot be suspended in trust (out of absolute ownership) for too long.

Religious: perpetual gifts trench on God’s prerogative to provide future well-being.

Question 3

What is the perpetuity period?

Answer 3

Common law: lives in being + 21 years
Statutory: 80 years (1964 act) or 125 year period (2009 act)

If trustees express in deed that they believe it is difficult/not reasonably practicable to ascertain whether lives have ended, then perpetuity is 100 years.

Question 4

What is the rule for remoteness of vesting?

Answer 4

Applies to contingent gifts. When it is certain beneficiary of an express trust is entitled to beneficial interest, then interest is “vested in interest.”

If interests only vest when/if contingencies are met, cannot be sure when/if they will be met, if ever. Gift void if might vest beyond perpetuity period.

“Wait and see” approach applies. Trustees can apply income + capital in favour of a beneficiary even if later established that B cannot meet the contingency before the end of perpetuity.

Question 5

What is the rule for inalienability of capital?

Answer 5

A trust will be void for inalienability of capital if renders capital inalienable for a period longer than the perpetuity period.

P Matthews: “A non-charitable trust is void unless it is certain from the outset that the rule in Saunders v Vautier can apply by end of perpetuity period.”

Question 6

What is the rule for excessive accumulation of income?

Answer 6

Harman LJ, Earl of Berkeley: Must be more than mere retention for administrative purposes. Process of adding income to capital, thereby “increasing the estate in favour of those entitled to capital against the interests of those entitled to income.”

Post April 2010 - no accumulation restrictions

Question 7

What are the restrictions on accumulation of income if the trust is before April 2010?

Answer 7

Accumulation not allowed if longer than most likely of following options:

1. Lifetime of settlor
2. 21 years from Testator death
3. Duration of minorities
4. 21 years after disposition
5. Duration of living minorities at the death of T