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Law relating to trusts to be modernised

A new Act to update the law relating to trusts has received the Royal Assent and is due to come into effect this year.

The Perpetuities and Accumulations Act 2009 will modernise the rules which restrict how long an owner can control the future ownership of property (perpetuities) and how long trustees can add income to capital (accumulations).

The Act is based on recommendations put forward by the Law Commission in a report published in 1998. The Commission was concerned that the rules on both perpetuities and accumulations had become outdated and confusing. For example, there were different methods for calculating the perpetuity periods. These included using "lives in being" under common law and periods of up to 80 years under legislation passed in 1964.

The Commission also believed there was no good reason for restricting a settler’s ability to direct or allow for the accumulation of income. However, it said there should be a different approach to charitable trusts to ensure that income would at some point be spent for the public benefit rather than be allowed to accumulate indefinitely.

The new Act addresses both these issues. It removes restrictions on accumulations except for charities, which will be subject to a 21-year limit or the life of the settlor. It also simplifies the rules relating to perpetuities by introducing a single 125-year period.

The changes will not affect pre-existing trusts or wills. However, if the trustees of an existing trust that uses lives in being to determine the perpetuity period are unsure whether the period has ended, they may be able to opt in to the provisions of the Act.

The Act has clarified certain matters but the rules relating to trusts remains complex and legal advice should always be sought before making any important decisions. Please contact us if you would like more information.

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