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New regulations on trusts coming into effect

The new regulations relating to trusts come into effect on 6th April this year.

The Perpetuities and Accumulations Act 2009 is based on recommendations put forward by the Law Commission to modernise rules which it believed had become outdated.

The Act abolishes the 21-year limit during which private trusts can accumulate interest without having to distribute it to beneficiaries. The Commission had argued that there was no good reason for restricting a settler’s ability to direct or allow for the accumulation of income.

In fact, such restrictions could create problems by obliging trustees to distribute income once the 21-year limit had been reached. This meant money could be given to beneficiaries who were too young to receive it or incapable of dealing with it properly because of health or other issues.

It’s thought the changes will make it more attractive to set up trusts because people can have more confidence that money will not be settled on beneficiaries when they are too young or if they are incapable of dealing with it for any other reason.

Charitable trusts will be still be subject to the 21-year limit, however, to ensure that income is spent for the public benefit rather than be allowed to accumulate indefinitely.

The Act also simplifies the rules relating to perpetuities by introducing a single 125-year period for all new trusts.

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