New Act Gives Flexibility - The Perpetuities and Accumulations Act 2009

Author: Bruce Hogarth-Jones

To a mighty chorus of yawns from those who are not lawyers specialising in wills and trusts, this new Act was passed in 2009 and becomes law on 6 April 2010. What practical difference will it make?

There are two main restrictions which are being relaxed. But first, it might be helpful to explain that the current rules were put in place to prevent land and assets being tied up forever (i.e. in perpetuity) in trusts. The trusts that tried to tie assets and land up forever were invalid. Similarly, under the old law of accumulations, after 21 years from the start of the trust any income received into the trust and not paid out to beneficiaries was converted into capital. There are advantages of paying income out to beneficiaries but for the purposes of this article the old law was designed to prevent excessive accumulations of income and encourage payments to beneficiaries.

Under the new Act, the maximum period for which a trust can last will now be fixed at 125 years and the trustees will also be allowed to accumulate income for up to the whole of that period, if they so choose.

What this means is that people making their wills or setting up lifetime trusts will, from April this year, have as much flexibility as they should need to provide for children and grandchildren across the generations.

Unfortunately, the rules on how existing wills and trusts are affected cause some problems. You might think that the new rules could just be applied to existing trusts or wills. What the new Act says, however, is that the old rules continue to apply to any trusts where the instrument establishing the trust was signed before 6 April 2010. Similarly, wills made before that date will continue to be subject to the old rules, even if the testator does not die for another 20 years! If you would like to take advantage of the new rules, perhaps to ensure income does not have to be paid to your beneficiaries prematurely, the advice is: (a) do nothing until 6 April, and (b) sign a new will, or resettle funds into a new trust (though be careful to check the tax consequences).

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