Perpetuities And Accumulations Bill Receives Royal Assent

On 12 November, the Perpetuities and Accumulations Act 2009 was passed, updating the law in this area for the first time since 1964.

The new Act will be of particular interest for those who:

· have created or are considering creating private trusts either during their lifetime or under the terms of their Wills; or

· are considering entering into agreements relating to land, such as options, rights of pre-emption, future easements or restrictive covenants.

The rules against perpetuities and accumulations were originally intended to limit the extent to which one generation could dictate the future use and ownership of property, and restrict the freedom of subsequent generations of owners to deal with property as they pleased, usually by means of private trusts.

However, over time, the restrictions had come to encompass a wider range of situations, including commercial arrangements such as options in relation to land, and this was one of the main reasons for the review of the law and the subsequent enactment of the Perpetuities and Accumulations Act 2009.

Accumulations:

The most obvious good news from the Act is that the restrictions on the accumulation of income by Trustees of private settlements have been abolished.

Prior to the new Act, it has generally only been possible for Trustees of a trust to accumulate income for a maximum of 21 years from the date of the creation of the settlement.

This will continue to be the case in respect of charitable trusts. However, once the new Act is in force, there will be no restriction on the accumulation of income during the lifetime of the trust for private trusts. This will be especially helpful for Trustees of discretionary settlements seeking to accumulate sufficient income to settle any Inheritance Tax liabilities on ten-year anniversaries.

Perpetuity Periods:

The rule against perpetuities sets a time limit (known as the ‘perpetuity period’) within which future dealings with property (such as gifts to a group of people who fulfil a particular condition or a particular child) must occur. If the rule against perpetuities is breached, this can result in a settlor’s wishes being ineffective to a greater or lesser extent.

However, the new Act provides for private trusts to continue for a significantly longer period. Once the new Act is in force, a single period of 125 years will be perpetuity period for all trusts created after the commencement date, and the rule against perpetuities will no longer apply to options, rights of pre-emption, future easements or restrictive covenants.

Unfortunately, not all of the new Act will apply retrospectively. Therefore, if you want to take advantage of the new rules in relation to a trust created under your Will, it is advisable to make a new Will after the commencement date. If you have created a private trust during your lifetime, we would be happy to discuss whether any changes can be made to the trust to allow it to benefit from the new provisions.

The new Act will come into force on 6 April 2010.

For more information please contact Victoria Spratt by emailing her here or call her on 01604 233233.