News and views from Lane-Smith & Shindler

A trust can be summarised as an arrangement whereby person A gives assets to persons B and C who together promise to deal with them for the benefit of persons D and E.  If the trust is made by a person during their life the arrangement is usually documented in a document called a trust deed.  Someone can also make a trust in their will.

The trust can take effect in a number of different ways.  For example, the arrangement may be for person D to receive the income from the trust assets during his or her life, subject to which the trust assets will pass to person E.  Or the trustees may be given discretion to pay income and capital at any time to any one or more members of a class of potential beneficiaries (for example the children and grandchildren of the person who provided the assets to set up the trust). 

There have always been two important restrictions on the nature of the arrangements allowed, designed to ensure that no-one could put assets in a trust indefinitely.  The so-called ‘rule against perpetuities’ means that a trust must generally come to an end after 80 years, and the ‘rule against excessive accumulations’ restricts to 21 years the period during which trustees can decide to accumulate income and add it to trust capital instead of paying it to a trust beneficiary.  Charitable trusts are not subject to these rules.

The Perpetuities and Accumulations Act 2009 will come into force on 6 April 2010 and makes the rules much more flexible.  It will introduce a longer perpetuity period of 125 years and abolish restrictions on accumulating income.  However the new rules will only apply to trusts made on or after 6 April 2010, and to wills signed on or after that date.  Existing trusts and wills are not affected.

Anyone who is thinking of making a trust, or of signing a will that includes a trust, might want to delay doing so until 6 April in order to take advantage of the new provisions.  Some people may want to sign a new will to replace an existing will in order to take advantage of the new provisions.  Trustees of existing trusts are however not able to bring themselves easily within the new regime.

We are now updating our standard documents to take account of the new rules.