The Rule Against Perpetuities & Accumulations

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The basis of the rules against perpetuities and accumulations is that it goes against public policy to tie property up indefinitely and accumulate income for an excessive period of time. The justification is the need to place restrictions on how far one generation can control property at the expense of future generations. Therefore, the law stipulates that such property must fall within a perpetuity period.

The Perpetuities and Accumulations Act 1964 (hereafter ‘the Act’) came into force on July 16th 1964. It was based upon a report by the Law Reform Committee in 1956 and alleviated a lot of the harsh results produced by the common law. The Act provided that an interest must vest within a specified period of time, failing which, the property returns to the settlor.

The rule restricts the extent to which future interests in property can be created by requiring that they take effect within a specified period of time (the ‘perpetuity period’). The Act allows a trust to specify a period of up to eighty years before the interest will vest. Alternatively, the rule against excessive accumulations limits the period during which income under a trust can be accumulated to 21 years and so the trust instrument may specify ‘lives in being plus twenty-one years’. Therefore, under the Act, there are two possible perpetuity periods: a specified period of up to 80 years, or a life (or lives) in being plus 21 years.

 

Before the Act, the rule against perpetuities was made up of two parts: a) the perpetuity period was ‘lives in being plus a period of 21 years; and b) if a future interest in property was not certain to vest within that period, the trust was deemed void from the outset. So to be valid, it had to be certain that a gift would vest within the perpetuity period.

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Yet where created after 15th July 1964, that interest will only be void where it must vest or take effect outside the perpetuity period. It is necessary to ‘wait and see’, if need be for the whole perpetuity period, to determine whether the interest is valid. So future interests are no longer void from the outset due to the possibility that they may vest outside the perpetuity period. Furthermore, the 1964 Act also provided for a 21year perpetuity period for options.

The Act introduced a number of other gift-saving devices, namely:

  1. presumptions and evidence as to ...

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