Creation and requirements of express trusts - The beneficiary principle and the rule against perpetuities

Learning Outcomes

This article explores two essential rules affecting the validity of express trusts: the beneficiary principle and the rule against perpetuities. After studying this article, you should be able to identify why trusts generally require ascertainable beneficiaries and recognise the limited exceptions to this rule. You will also understand the purpose of the rule against perpetuities and its application to different types of trust interest, ensuring the trust does not tie up property indefinitely. This knowledge is essential for answering SQE1 questions on trust validity.

SQE1 Syllabus

For SQE1, you are required to understand the essential requirements for creating a valid express trust. This includes the three certainties and the rules discussed in this article. It is likely you will need to identify whether a purported trust fails due to offending the beneficiary principle or the rule against perpetuities.

As you work through this article, remember to pay particular attention in your revision to:

  • The beneficiary principle and the rationale behind it.
  • The recognised exceptions to the beneficiary principle, including charitable trusts and specific non-charitable purpose trusts.
  • The rule against perpetuities, including the rule against remoteness of vesting and the rule against inalienability.
  • The statutory perpetuity periods and how they apply.
  • The consequences of breaching either the beneficiary principle or the rule against perpetuities.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

  1. Why must a private trust generally have ascertainable human beneficiaries?
    1. To ensure the trust property is certain.
    2. To satisfy the requirement of certainty of intention.
    3. So there is someone who can enforce the trust against the trustees.
    4. To comply with the rule against perpetuities.
  2. Which of the following is a recognised exception to the beneficiary principle?
    1. A trust for the maintenance of the settlor’s car.
    2. A trust for the promotion of a political party.
    3. A trust for the care of the testator's specific pet dog for 21 years.
    4. A trust for 'my best friends'.
  3. What is the primary purpose of the rule against perpetuities?
    1. To ensure beneficiaries are treated fairly.
    2. To prevent property being tied up indefinitely within a trust.
    3. To ensure trustees invest trust property wisely.
    4. To define the duties of a trustee.
  4. Under the Perpetuities and Accumulations Act 2009, what is the standard perpetuity period for trusts created on or after 6 April 2010?
    1. 21 years
    2. 80 years
    3. 125 years
    4. Lives in being plus 21 years

Introduction

For an express trust to be valid, beyond satisfying the three certainties (intention, subject matter, and objects), it must also comply with two fundamental principles: the beneficiary principle and the rule against perpetuities. These principles address core requirements of enforceability and the duration for which property can be controlled by the terms of a trust. Understanding these rules is essential for determining the validity of trust arrangements encountered in practice and assessed in the SQE1 exam.

The Beneficiary Principle

The general rule is that a trust must be for the benefit of ascertainable persons (beneficiaries), not for abstract purposes. This is known as the beneficiary principle, famously stated in Morice v Bishop of Durham (1804).

Key Term: Beneficiary Principle The principle that a private, non-charitable trust must have ascertainable human beneficiaries who are capable of enforcing the trust.

The rationale behind this principle is enforceability. If there are no beneficiaries, there is no one who can apply to the court to compel the trustees to perform their duties or to remedy a breach of trust. The court itself cannot supervise the trust's administration effectively without someone having the right to bring matters before it.

Consequences of Breaching the Beneficiary Principle

If a trust attempts to benefit a purpose rather than ascertainable individuals and does not fall within the recognised exceptions, it will generally be void. The property will be held on a resulting trust for the settlor (or their estate if the trust was created by will).

Exceptions to the Beneficiary Principle

There are important exceptions where trusts for purposes are permitted:

  1. Charitable Trusts: These trusts are for purposes beneficial to the public (e.g., relief of poverty, advancement of education). They are enforced by the Attorney General on behalf of the Crown and are regulated by the Charity Commission. Public benefit is a key requirement. Charitable trusts are not subject to the beneficiary principle.

  2. Specific Non-Charitable Purpose Trusts (Anomalous Exceptions): These are a limited category of private purpose trusts recognised historically as valid despite lacking human beneficiaries. They are often called trusts of imperfect obligation because, although valid, there is no beneficiary to compel performance. Examples include:

    • Trusts for the maintenance of specific animals (e.g., Re Dean (1889)). The duration must be limited to the perpetuity period (see below).
    • Trusts for the erection or maintenance of tombs and monuments (e.g., Re Hooper [1932]). Again, duration must be limited.
    • Trusts for the saying of private masses.

    These exceptions are anomalous and courts are reluctant to extend them (Re Endacott [1960]).

  3. Trusts for the Benefit of Ascertainable Individuals (Re Denley Trusts): A trust expressed as being for a purpose may be valid if the purpose directly or indirectly benefits ascertainable individuals who could enforce the trust (Re Denley’s Trust Deed [1969]). For example, a trust to maintain a sports ground for the use of employees of a company. The individuals must be ascertainable, and the trust must comply with the perpetuity rules.

Worked Example 1.1

A testator leaves £50,000 in his will 'on trust for the purpose of campaigning for stricter laws on animal cruelty'. Is this trust valid?

Answer: This trust is likely void. Campaigning for a change in the law is generally considered a political purpose, which is not charitable. As a non-charitable purpose trust, it would need to fall into the anomalous exceptions or the Re Denley category. It does not fit the anomalous exceptions. It might be argued it indirectly benefits animals (and perhaps people who care about them), but the primary purpose is political campaigning, which lacks the direct and tangible benefit to ascertainable individuals required for a Re Denley trust. It likely fails the beneficiary principle.

The Rule Against Perpetuities

The rule against perpetuities exists to prevent property being tied up within trusts for an excessively long period, making it inalienable (unable to be sold or transferred freely). It ensures that property ultimately becomes available for commerce and use by future generations. There are two limbs to the rule relevant to trusts:

  1. The Rule Against Remoteness of Vesting: Concerns when beneficial interests must vest.
  2. The Rule Against Inalienability: Concerns trusts that render capital inalienable for too long (primarily relevant to non-charitable purpose trusts).

Rule Against Remoteness of Vesting

This rule requires that equitable interests under a trust must vest (become certain to belong to someone) within the perpetuity period. If there is a possibility that an interest might vest outside this period, the gift may be void from the outset.

Key Term: Rule Against Perpetuities A set of legal rules designed to prevent property from being tied up in trust, or subject to contingent interests, for an excessive period.

Key Term: Perpetuity Period The maximum duration allowed for a trust interest to remain contingent before it must vest.

The Perpetuities and Accumulations Act 2009 (PAA 2009) applies to trusts taking effect on or after 6 April 2010. It simplifies the rules:

  • It establishes a single statutory perpetuity period of 125 years. Settlors cannot specify a different period.
  • It introduces a 'wait and see' rule. An interest is only void if it actually fails to vest within the 125-year period. We no longer void gifts based on hypothetical possibilities that might occur outside the period.

For trusts created before 6 April 2010, the older, more complex common law rules apply, often involving 'lives in being plus 21 years' or a specified period up to 80 years under the Perpetuities and Accumulations Act 1964, along with different 'wait and see' provisions. For SQE1, focus primarily on the PAA 2009 rules unless specifically told otherwise.

Key Term: Remoteness of Vesting The rule requiring that beneficial interests under a trust must vest (become certain) within the perpetuity period.

Worked Example 1.2

A trust created in 2023 provides property 'to my first grandchild to qualify as a solicitor'. At the time the trust is created, the settlor has no grandchildren. Is this gift valid under the rule against remoteness of vesting?

Answer: Yes, the gift is likely valid under the PAA 2009. The perpetuity period is 125 years. We 'wait and see' if a grandchild qualifies as a solicitor within that period. If one does, the gift vests and is valid. If no grandchild qualifies within 125 years, the gift will fail at that point, but it is not void from the start.

Rule Against Inalienability

This rule primarily affects non-charitable purpose trusts (the anomalous exceptions like trusts for animals or tombs) and some trusts for unincorporated associations. It prevents capital from being locked up and rendered inalienable (untouchable) for longer than the common law perpetuity period (usually 'lives in being plus 21 years' or a fixed 21 years if no relevant lives).

Key Term: Inalienability Rule The rule preventing trust capital from being rendered incapable of transfer (inalienable) for a period longer than the perpetuity period. Primarily applies to non-charitable purpose trusts.

Charitable trusts are generally exempt from this rule, provided the capital can eventually be spent. The 125-year period under the PAA 2009 does not apply to the rule against inalienability.

A non-charitable purpose trust will be void if it is intended, or could potentially, last longer than the relevant perpetuity period (e.g., 21 years).

Exam Warning

Do not confuse the two perpetuity rules. Remoteness of vesting applies to when interests must vest for beneficiaries (usually individuals) and uses the 125-year period (post-2010). Inalienability applies mainly to non-charitable purpose trusts and prevents capital being tied up, using the common law period (often 21 years). Charitable trusts are largely exempt from both, provided they are genuinely charitable.

Key Point Checklist

This article has covered the following key knowledge points:

  • The beneficiary principle requires most private trusts to have ascertainable human beneficiaries capable of enforcing the trust.
  • Trusts for abstract non-charitable purposes generally fail unless they fall within recognised exceptions (charitable trusts, specific anomalous non-charitable purpose trusts, Re Denley trusts).
  • The rule against perpetuities prevents property being tied up in trust for too long.
  • The rule against remoteness of vesting requires interests to vest within the perpetuity period (125 years for trusts post-April 2010 under PAA 2009, subject to 'wait and see').
  • The rule against inalienability restricts the duration of non-charitable purpose trusts, typically to 21 years.
  • Charitable trusts have special status regarding both the beneficiary principle and perpetuity rules.

Key Terms and Concepts

  • Beneficiary Principle
  • Rule Against Perpetuities
  • Perpetuity Period
  • Remoteness of Vesting
  • Inalienability Rule
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