TSEM6240 - Legal background to trusts & estates: rules of perpetuity

Perpetuities and Accumulations Act

The Perpetuities and Accumulations Act came into force on 16 July 1964. 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. In the case of a will trust the funds would go to the personal representatives of the deceased. They would deal with the funds as part of the residuary estate.

The Act 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’. If future interests were not certain to vest within this period, the trust was invalid from the start. Nowadays we have to wait and see.

There are rules to stop trustees from accumulating income for an excessive time. These prevent trustees using the accumulations to buy additional trust property for a longer period than Parliament thinks appropriate.

All the provisions are complicated. Refer any problems about perpetuities or accumulations to HMRC Trusts Head Office Edinburgh.