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Law Reform – Perpetuities and Accumulations

In 1998 the Law Commission first produced a report recommending reform of two long standing legal rules, the rule against perpetuities and the rule against excessive accumulations. These recommendations have now been accepted by Government and the Perpetuities and Accumulations Bill received Royal Assent on 12 November 2009. As background; the rule against perpetuities has its origins in common law. A statutory time limit was added by the 1964 Act setting a time limit for future dealings with property of 80 years. The rule against excessive accumulations was enacted in the 1800’s allowing income to be accumulated by the trust rather than distributed. Time limits were also placed on this period by the 1925 Law of Property Act and the 1964 Act. The Law Commission identified problems with this current law which mainly focus on the rule against perpetuities being too wide (it encompassed commercial dealings such as future easements, options and rights of pre-emption which it was never designed to control), complex and confusing, particularly where the common law rule of ‘lives in being’ was imposed. The key changes introduced by the new Act ends this uncertainty by imposing a single, mandatory, perpetuity period of 125 years. This removes any previous statutory periods and the use of the common law rule. The new period will apply for all trusts created after the legislation comes into force. In relation to Wills this means that any Will executed after the implementation date will be subject to the new perpetuity period. Wills executed prior to the date the Act comes into force will still be subject to the old regime regardless of when the testator dies. The Act does however give the option for the trustees to fix the perpetuity period for those trusts that come into existence under the ‘lives in being’ rules. This can assist trustees where it is difficult to establish when the period ends under common law by fixing the period at 100 years. In relation to excessive accumulations; the new Act abolishes the rule for all noncharitable trusts. For charitable trusts there are two accumulation periods available; either the life of the settlor (for lifetime trusts) or 21 years. The abolition of the rule for non-charitable trusts will be particularly useful for trustees of discretionary settlements who will be able to accumulate sufficient income to settle any inheritance tax liabilities on ten year anniversaries. A commencement date for the Act has not yet been specified by the Lord Chancellor but is expected to be in 2010. The need to have a valid Will in place outweighs any benefit to gained by waiting until the new provisions are in force. Should any clients wish to take advantage of the longer perpetuity period a codicil can be produced to effectively ‘republish’ the Will at a later date so that it falls under the new regime.

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