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The Rules Against Perpetuities and Excessive Accumulations

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The Rules Against Perpetuities and Excessive Accumulations 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: 071--411 1213 Fax: 071-41 1 1297 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 I1 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 (b) Any life or lives in being listed in the Perpetuities and Accumulations Act 1964, s. 3(5)plus 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 (f) Not fitting well with other statutory provisions 4.36 61 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 I' 5.36 73 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 (b) Extended powers for the court to vary trusts 5.56 79 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.
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