Perpetuities and Accumulations Act 2009
– A welcome relaxation of trust rules.
FEBRUARY 2010
The Perpetuities and Accumulations Act 2009 makes useful changes to two long held rules applicable to trusts. The first is the rule against perpetuities which in effect restricts the length of time a trust can legally exist. The second is the rule against excessive accumulations which limits the time during which trustees can add income to capital instead of paying it to the beneficiaries.
The time limit for trusts (with the exception of charitable trusts) is known as the ‘perpetuity period’ and has until now generally been 80 years. The accumulation period during which time the trustees are able to accumulate income is normally restricted to 21 years. Both these rules exist to prevent settlors from locking their wealth away for an indefinite period of time.
The Perpetuities and Accumulations Act 2009 is expected
to come into force on 6 April 2010 and eases both of these
restrictions.
The new legislation introduces a single, mandatory 125 year
perpetuity period which is applicable to all lifetime trusts
taking effect after 6 April 2010 and trusts in wills executed
after this date.
The change to the rule against excessive accumulations is perhaps the most significant as it abolishes the restrictions on trustees relating to accumulations for all non-charitable trusts. Trustees of trusts which take effect after 6 April 2010 and wills executed after this date will be able to accumulate income for up to the whole of the 125 year perpetuity period. Charitable trusts are still governed by the old rule because it was deemed contrary to public interest to allow charities to accumulate income indefinitely.
It should be noted however that the new rules will not apply to trusts executed before 6 April 2010 and trusts established under a Will executed prior to that date, irrespective of whether the person making the Will dies after 6 April 2010.
If you would like any further information about the issues raised in this article please contact Ian Bradshaw or Clare Jeffries of Goodman Derrick LLPs private client team on 0207 404 0606.
This guide is for general information and interest only and should
not be relied upon as providing specific legal advice.
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