The Law of Trusts - The Rules Against Perpetuities and Excessive Accumulations

115 Pages·2005·7.46 MB·English

ITIES AND
LAW COMM I SSl ON
CONSULTATION PAPER No 133
The Law Commission was set up by section 1 of the Law Commissions Act 1965 for the
purpose of promoting the reform of the law.
The Law Commissioners are:
The Honourable Mr Justice Brooke, Chairman
Mr Trevor M. Aldridge, Q.C.
Professor Jack Beatson
Mr Richard Buxton, Q.C.
Professor Brenda Hoggett, Q.C.
The Secretary of the Law Commission is Mr Michael Collon and its offices are at Conquest
House, 37-38 John Street, Theobalds Road, London WC1 N 2BQ.
This consultation paper, completed on 19 October 1993, is circulated for comment and
criticism only. It does not represent the final views of the Law Commission.
The Law Commission would be grateful for comments before 30 June 1994. All
correspondence should be addressed to:
Mr A. Akbar
Law Commission
I
Conquest House
37-38 John Street
Theobalds Road
London WClN 2BQ
Tel: [phone]
Fax: [phone]
It may be helpful for the Law Commission, either in discussion with others concerned or
in any subsequent recommendations, to be able to refer to and attribute comments
submitted in response to this consultation paper. Whilst any request to treat all, or part,
of a response in confidence will, of course, be respected, if no such request is made the
Law Commission will assume that the response is not intended to be confidential.
The Law Commission
Consultation Paper No. 133
The Law of Trusts
The Rules against Perpetuities
and Excessive Accumulations
A Consultation Paper
HMSO
0 Crown copyright 1993
Applications for reproduction should be made to HMSO
ISBN 0 I 1 730217 1
THE LAW COMMISSION
CONSULTATION PAPER No. 133
THE LAW OF TRUSTS
THE RULES AGAINST PERPETUITIES AND EXCESSIVE ACCUMULATIONS
CONTENTS
Paragraph Page
PART I: INTRODUCTION 1.1 1
Arrangement of this paper 1.17 5
PART 11: THE PRESENT LAW OF THE RULE AGAINST
PERPETUITIES 2.1 6
Statement of the rule against perpetuities 2.1 6
Certainty of prediction at common law 2.8 7
Wait and see under the 1964 Act 2.13 9
Perpetuity periods at common law 2.16 10
Perpetuity periods under the 1964 Act 2.17 11
(a) Fixed period of years not exceeding 80 years 2.18 12
Any life or lives in being listed in the Perpetuities and
(b)
Accumulations Act 1964, s. 3(5)p lus 21 years and any
period of gestation 2.20 12
Lives in being at common law 2.21 13
Lives in being under the 1964 Act 2.25 14
Class gifts at common law 2.28 16
Class gifts under the 1964 Act 2.31 17
Reduction of age under the Law of Property Act 1925 2.35 18
Reduction of age under the 1964 Act 2.36 19
Gifts dependent on prior void gifts at common law 2.38 20
Gifts dependent on prior void gifts under the 1964 Act 2.39 21
Determinable and conditional interests at common law 2.40 21
Determinable and conditional interests under the 1964 Act 2.43 22
Powers at common law 2.46 23
Administrative powers at common law 2.47 23
Dispositive powers at common law 2.48 24
Powers under the 1964 Act 2.51 25
Administrative powers under the 1964 Act 2.51 25
Dispositive powers under the 1964 Act 2.52 25
Proprietary interests at common law 2.55 27
Proprietary interests under the 1964 Act 2.59 29
Exceptions to the rule against perpetuities 2.63 30
(a) Law of Property Act 1925, s.162 2.63 30
(b) Charities 2.64 31
(c) Pension schemes 2.67 32
(d) Limitations after entails 2.70 34
(e) Forfeiture of leases and enforcement of rentcharges 2.71 34
(i) FORFEITURE OF LEASES 2.71 34
(ii) ENFORCEMENT OF RENTCHARGES 2.72 34
...
111
Paragraph Page
v) Mortgages 2.73 35
(g) Joint tenancies 2.74 35
(h) Interests in foreign property 2.75 35
PART 111: THE PRESENT LAW OF THE RULE AGAINST
EXCESSIVE ACCUMULATIONS 3.1 36
Statement of the rule 3.1 36
Meaning of "accumulation" 3.2 36
Directions to which the statutory provisions apply 3.9 39
Implied trusts 3.10 39
Powers to accumulate 3.11 40
The statutory accumulation periods 3.12 40
(a) The life of the grantor or settlor 3.13 40
(b) A term of twenty-one yearsfrom the death of the grantor,
settlor or testator 3.14 41
(c) The duration of the minority or respective minorities of any
person or persons living or en ventre sa mbre at the death of
the grantor, settlor or testator 3.15 41
(d) The duration of the minority or respective minorities only of
any person or persons who under the limitation of the
instrument directing the accumulations would, for the time
being, if of full age, be entitled to the income directed to be
accumulated 3.16 41
(e) A term of twenty-one yearsfrom the date of the making of the
disposition 3.18 42
fl The duration of the minority or respective minorities of any
person or persons in being at that date 3.19 43
Choice of period 3.20 43
Excessive accumulations 3.22 44
Surplus income 3.24 44
Saunders v. Vautier 3.26 45
Exceptions to the rule against excessive accumulations 3.28 46
(a) Payment of debts 3.28 46
(b) Portions 3.29 46
(c) Timber or wood 3.30 47
(d) Law of Property Act 1925, s.165 3.31 47
(e) Pension schemes 3.32 48
If) Certain commercial contracts 3.34 48
PART IV: CRITICISMS OF THE PRESENT LAW 4.1 50
A. THE RULE AGAINST PERPETUITIES 4.2 50
(a) Complexity 4.3 50
.
(i) Interaction of common law and the 1964 Act 4.4 50
(ii) Existence of three perpetuity periods 4.6 51
(iii) The 1964 Act and other statutory provisions 4.8 52
(b) Uncertainty 4.9 52
(c) Inconsistency 4.11 54
(d) Interference with commercial contracts 4.13 54
(e) Harshness 4.15 55
iv
Paragraph Page
(f) Lack of adaptability 4.16 55
(g) Expense 4.18 56
B. THE RULE AGAINST EXCESSIVE ACCUMULATIONS 4.20 56
(a) Complexity 4.21 57
(b) Uncertainty 4.25 58
(c) Inconsistency 4.29 59
(d) Frustrating the reasonable wishes of settlors and testators 4.31 59
(e) Applying to charitable trusts 4.35 60
Not fitting well with other statutory provisions 4.36 61
(f)
PART V: OPTIONS FOR REFORMING THE RULE
AGAINST PERPETUITIES 5.1 62
Introduction 5.1 62
Retrospectivity 5.3 62
OPTION 1: TO DO NOTHING 5.8 64
OPTION 2: ABOLITION OF THE RULE 5.11 65
(a) Functions of the rule against perpetuities 5.12 65
(i) Curtailment of "Dead Hand Control" 5.13 65
(ii) Ensuring the alienability of property 5.15 66
(b) The case for abolition of the rule 5.17 66
No need for a rule against perpetuities 5.18 66
Performance offunctions by other rules of law 5.23 68
(i) STATUTORY POWERS OF SALE 5.24 68
(ii) TAX LEGISLATION 5.26 69
(iii) VARIATION OF TRUSTS 5.27 70
(iv) THE INHERITANCE (PROVISION FOR FAMILY AND
DEPENDANTS) ACT 1975 5.30 72
Freedom of disposition 5.31 72
Simplification 5.32 72
Avoidance of the rule 5.33 72
Abolition of the rule in Manitoba 5.34 73
(c) The case against abolition 5.35 73
Need for the law to curtail "dead hand control 5.36 73
I'
Limits to attainment of the policies by other rules 5.39 75
(i) STATUTORY POWERS OF SALE 5.40 75
(ii) TAX PROVISIONS 5.41 75
(iii) POWERS TO VARY TRUSTS 5.42 75
(iv) FAMILY PROVISION LEGISLATION 5.43 76
European Convention on Human Rights 5.44 76
Smooth operation of rule in practice 5.45 76
(d) Summary 5.46 76
OPTION3: REPLACEMENT OF THE RULE AGAINST
PERPETUITIES WITH A NEW RULE 5.49 77
(a) A duration rule 5.50 77
Extended powers for the court to vary trusts 5.56 79
(b)
V
Paragraph Page
OPTION 4: REFORMING THE RULE AGAINST
PERPETUITIES 5.57 79
Introduction 5.57 79
(a) Removing the need under the 1964 Act to apply the common
law before wait and see 5.58 80
(b) Make a fixed period of years the only perpetuity period 5.65 81
(c) Introduce a cy-prks system 5.69 83
(i) When should cy-prks be available? 5.71 83
(ii) Determining the intention of the disponor 5.73 84
(iii) Standing to make an application 5.75 84
(iv) Extent of jurisdiction 5.76 85
(d) Make provision for advances in reproductive technology 5.79 85
(e) Create new exceptions to the rule against perpetuities 5.80 86
(i) Exclusion of specijic types of dispositions 5.81 86
(1) PENSION SCHEMES 5.81 86
(2) FUTURE EASEMENTS 5.83 86
(3) OPTIONS AND CONTRACTS 5.84 87
(4) RIGHTS OF PRE-EMPTION 5.86 88
(5) CONTINGENT DISPOSITIONS TO CHARITY 5.87 88
(ii) Exclusion of all commercial dispositions 5.88 88
Provisional conclusion 5.91 89
PART VI: OPTIONS FOR REFORMING THE RULE
AGAINST EXCESSIVE ACCUMULATIONS 6.1 90
Introduction 6.1 90
Should abolition or reform be retrospective? 6.2 90
OPTION 1: TO DO NOTHING 6.3 90
OPTION 2: ABOLITION OF THE RULE 6.4 90
(a) The case for abolition 6.5 90
(i) No need to restrict accumulations 6.5 90
(ii) Other rules of law operating to restrict accumulations 6.7 91
(1) THE RULE AGAINST PERPETUITIES 6.7 91
(2) TAX LEGISLATION 6.10 92
(3) FAMILY PROVISION LEGISLATION 6.12 92
(4) THE VARIATION OF TRUSTS ACT 1958 6.13 93
(iii) Avoidance measures 6.14 93
(iv) The position in other jurisdictions 6.16 93
(b) The case against abolition 6.17 94
(i) Continuing relevance of the rule 'sfunctions 6.17 94
(ii) Need for the rule against excessive accumulations to
ensure that the functions are pe@ormed 6.21 95
.OPTION 3: REFORM OF THE RULE 6.22 96
(a) Change the accumulation periods 6.23 96
(b) Codify all the relevant law in one statute 6.27 97
(c) Reform the exceptions to the rule 6.28 98
(d) Extend the "wait and see" provisions of the 1964 Act 6.31 98
(e) Other matters 6.32 99
Provisional conclusion 6.34 99
vi
Paragraph Page
PART MI: SUMMARY OF ISSUES 7.1 100
A. THE RULE AGAINST PERPETUITIES 7.2 100
B. THE RULE AGAINST EXCESSIVE ACCUMULATIONS 7.10 102
APPENDIX: LIST OF SOLICITORS’ FIRMS WHO
SUBMITTED RESPONSES TO A
QUESTIONNAIRE DISTRIBUTED IN 1991 104
vii
PART I
INTRODUCTION
1.1 In this Paper we consider possible changes to legal rules which place restrictions on
the ways in which owners may give away their property, whether during their lifetime or by
will, on terms which give a number of people limited interests.’ The rules effectively limit
the period during which property can be held in trust, and restrict how far into the future it
is possible to benefit recipients.
1.2 In our Fourth Programme of Law Reform’ we identified this aspect of the law of
trusts as one now in need of e~amination:~
Perpetuity rule. Carefully thought out dispositions of property run the risk of
being declared wholly or partially invalid, e.g. Re Dr~mmondR,~e Green’s
Will trust^,^ because through technicalities they infringe the rule against
perpetuities. We wish to examine the policy behind the rule, and also the
policy on accumulations, to see whether in modern conditions they can any
longer be justified, and if so, whether they could be simplified and brought up
to date (particular account being taken of any difficulties experienced with the
operation of the Perpetuities and Accumulations Act 1964).
1.3 In proposing this topic for law reform, the Commission had in mind that in Scotland
the law of trusts has no rule corresponding to the rule against perpetuities, and that in a
number of common law jurisdictions the rule against perpetuities has been abolished or its
abolition has been recommended. Similarly, other common law jurisdictions have no rule
against excessive accumulations, or have one which is less restrictive.
1.4 For centuries the owner of property, real or personal, wishing to make a disposition
of it either in his lifetime or on his death and to dictate how the property should thereafter
devolve, has been restricted by a number of rules of public policy developed by the Courts.
Some of those rules6 became obsolete with, or were abolished by, the fundamental reforms
of 1925. Two rules survive. One, the rule against inalienability, sometimes called the rule
In a typical case, a parent may give property to a son or daughter for their life, on terms that after their
death it is divided between the grandchildren. Such a gift made during the donor’s lifetime would
establish a settlement or trust.
*
(1989) Law Com. No. 185.
Item 8(b).
[1988] 1 W.L.R. 234.
[1985] 3 All E.R. 455; para. 2.18 below.
The rules governing contingent remainders and executory interests, and the rule against double
possibilities (known as the rule in whitby v. Mitchell (1890) 44 Ch. D. 85).
1