Law of Succession pt.2

Q2) “The common law attitude to long term or perpetual trusts was that in general such trusts were upheld. The existing restrictions on trust provisions (in relation to accumulations and successive lifrents) are statutory in origin”. Explain those restrictions and the arguments for their retention or whether they should be reformed or repealed.

In England and Wales, the beneficiary in general is able to claim from the trust the income generated from the property when they turn 18. The law of Scotland differs from this as there is no equivalent entitlement to the income of trust at the age of 18 however, scot law does limit the accumulation period.

An accumulation of income has rules derived from the Accumulation Act 1880 and 1848 act. Accumulation is adding income to a capital fund rather than distributing it. This act was introduced to remedy situations when this occurs. An example of this being put to play was illustrated in the Thellusson v Woodford 1805 case. Mr T directed the income of his property to be accumulated during the lives of his children and grandchildren. The accumulation fund amounted to £600,000 which continued over 60 years. The bequest was held to be valid. In order to prevent property being distributed like this in the future, the parliament passed the “The Thellusson Act 1800” to prohibit perpetuities. The courts summaries both of the above acts as serving the purpose to prevent allowing accumulation to continue growing over a certain duration of time in order to generate mass capital for the benefit of a generation yet to come.

Limiting the periods allows the funds to be actually be distributed to a beneficiary rather than being held doing nothing collecting dust. The relevant provisions which deal with the specific periods of time are The Trusts (s) Act 1961 s5 and the Law Reform (Miscellaneous Provision) (S) 1966 s6. Both acts working together, place six possible periods to prevent accumulation. It will be up to the courts to decide which to enact depending on the facts of the case.

Accumulations limited by the Trusts (S) Act 1961 s5 sets out four periods. The first states that if the deed is an inter vivos deed, the accumulation may continue throughout the life of the grantor. If the accumulation continues after death one of the permitted periods may apply however, it can continue if the direction makes a reference to a minority which will not apply the rules of Age of Legal Capacity 1991 Act, instead it will take the definition for section 6 of the act which states a minority is 21, it will continue after death.

Section 5 (b) allows the accumulation to continue for a term of 21 years after the death of the grantor. This is illustrated in Carey’s Trs v Rose 1957 where Mr C directed his trustees to hold the residue of his estate for his son for when he turns 21 however he failed to give direction to the income of the estate. The son was born two years after the death of Mr C which lead to the period amounting to 23 years. The question was whether this was illegal. It was held that any income subsequent to a period of 21 years must fall into intestacy. The direction is void if it’s over 21 years and the person who, if the direction had not been made, would be entitled to the income will receive it.

Section 5 (c) states that the duration of the minority or respective minorities of any person or persons living or in utero at the death of the granter may continue.

And section 5 (d) duration of minority or minorities of any person or persons who, in terms of the will, or settlement, or other disposition directing the accumulation, would, for the time being, if of full age, be entitled to the income directed to be accumulated.
The limitations placed by the Law Reform (Miscellaneous Provisions) (S) Act 1966 s6 are as follows; S6 (a) provides that income may be accumulated for a term of 21 years from the making of the settlement or other disposition and also the duration of the minority of any person living or in utero at the date of the making of the settlement or other disposition at the date of the deed.

In addition to this, Scots law have developed a rule that limits the creation of life rents. This derived from the Entail Amendment Act 1843 (now section 18 of Law reform act 1968)  What this entails is that a life rent can only be created in favour of a person who is alive or in utero at the date when the deed creating the life rent comes into operation. If a life rent is created in favour of any other person, that person is entitled to a right of fee either as soon as the life rent comes into operation or, if later, when he or she attains majority. If not in life when deed comes into operation but is subsequently born, take the life rent until 18 then take capital absolutely to exclusion of intended capital beneficiary

The commission question whether the current restrictions still serve a useful purpose. The SLC suggest that a balance must be established between the freedom of a testator to do as he wishes with his property and the freedom of future generations to use the property to what they believe is in their best interest. The SLC make reference to how the rules have been abolished in Australia without any problems. That being said, the SLC have raised a few proposals for the law in Scotland to be reformed.

The SLC suggest power be given to Courts after trust has been in existence for 25+ years The permitted alterations would be those that were clearly expedient to deal with a relevant change of circumstances. Private trusts are almost invariably set up in order to benefit a family, which is why the SLC propose that the court should have regard to all family members along with the beneficiaries. The court should not only be limited to beneficiaries and trustees as they are considering fairness with all family members.

The Court should continue to have power to reduce any trust purpose on the ground that it is unintelligible, impracticable or unreasonable. That jurisdiction should continue to be exercisable at any time, and should not be affected by the jurisdiction.

In the SLC view, such reasoning strengthens the case for reform of the Scots law rule restricting accumulation and also that governing successive life rents, so that Scotland can maintain its position as a trust-friendly jurisdiction in the face of competition from neighbouring jurisdictions.

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