Legal background to trusts & estates: rules of perpetuity
There are rules to stop trusts in England & Wales from existing for an excessive time.
Trusts established from 6 April 2010
The Perpetuities and Accumulations Act 2009 came into force on 5 April 2010. It requires an interest to vest within a set period of time. If the interest fails to vest at the end of the permitted period, the funds return to the settlor.
There is one statutory period of 125 years for instruments that take effect after 5 April 2010.
Trusts established before 6 April 2010
For instruments taking effect before 6 April 2010 the Perpetuities and Accumulations Act 1964 allows the trust instrument to specify a flat period of up to 80 years before the interest vests. Alternatively, the trust instrument can specify ‘lives in being plus 21 years’. Trusts often use 21 years after the death of the last survivor of the descendants now living of a named British monarch.
Before 16 July 1964 the only criteria was ‘lives in being plus 21’. But most trusts used the 80 year period. If future interests were not certain to vest within this period, the trust was invalid from the start. The ‘wait and see’ principle means that the rule against perpetuities does not affect an interest in property unless and until it becomes certain that the interest will not vest within the perpetuity period.
Refer any questions about perpetuities to HMRC Trusts & Estates Technical Edinburgh.