Trust - The Rule Against Perpetuity

Amongst the countless legal issues that arise in the creation of a trust, the rules governing when property settled on trust must vest are often the most difficult but yet underrated. In other words, the point when capital and income of the trust are owned absolutely (i.e., legally and beneficially) freeing those entitled to the same (the beneficiaries), to dispose or otherwise deal with the property as they wish. It suffices to say that appreciating the mechanics of the rule is of critical importance today, as when it was formulated ab initio.

It is generally understood that a trust is an arrangement where one person or institution (a trustee), holds settled property of another (the settlor) for the benefit of others (beneficiaries). While trust arrangements remain perfectly permissible, the law has always been concerned to ensure that property settled within such structures is not unduly tied up in a manner precluding future dealings with it.

In broad terms, the perpetuity rule developed in response to a practice by which property was left to a line of successors, and under which none could stop their successor from taking the benefit after them. A practical demonstration would be a property owner who settled land on trust for his son for life and then for his son and so on successively; keeping the property within the same family and preventing any dealing with it in a manner a particular successor may have wished, different from the settlor’s wishes. It was factors such as these that gave rise to the rule – against property being bound up perpetually. In other words, that trust interests will be invalid unless vesting takes place within a defined period from the creation of the trust.

It is instructive to note that the rule does not state that a trust must only last for a specified period of time. Rather, it controls the extent of time the trust should last for by ensuring that the property vests by a particular point. Under the Perpetuity and Accumulations Act 2009 in England for instance.  The perpetuity period for trusts governed under that law is 125 years from when the trust instrument takes effects.  Property purportedly vesting outside that period stands in infringement of the rule with consequences for the trust; rendering it void. Put very simply, the Act abolished common law provisions, setting a precise and standard period of 125 years.

In Nigeria the rule is hardly known. In the absence of legislation specifically on the point, our position is governed by the English common law which, simply put, is that no interest in property is valid unless vesting takes place not later than twenty-one years, after the death of the last relevant person who was living at the date the trust was created.

For present day purposes, it may benefit the reader to note that where one has a will or trust providing for a contingent beneficiary in the event something happens to the primary beneficiary, the rule will come into play. For this reason, a Will or Trust document ought to have a clause addressing the provisions of this rule. A property owner in creating a trust instrument will take heed not to control devolution of the property indefinitely or impose any constraint on freedom to dispose of the property beyond the perpetuity period. 

In the meantime, it is helpful to add that unlike with private trusts, the common law Rule against Perpetuities does not apply to the duration of charitable trusts. Rather, charitable trusts can continue perpetually. Click here to download pdf