You would be forgiven if you have never read the provisions of the Perpetuities Act from beginning to end. The Rule Against Perpetuities is one of those concepts which strikes fear into many a legal practitioner, with flashbacks to first year law school and archaic language and concepts from a time closer to Shakespeare’s than our own racing through their head. I know I personally hadn’t given much thought to the Perpetuities Act beyond “look here when dealing with the rule against perpetuities” until recently. You can imagine my surprise then when I recently discovered there are useful provisions in the Perpetuities Act beyond the Rule Against Perpetuities.
The provision in question was section 16 of the Perpetuities Act, which potentially saves a trust which otherwise may fail for being an invalid “non-charitable purpose trust” by converting the failed trust into a power for the trustee. Specifically, section 16(1) of the Perpetuities Act provides:
“A trust for a specific non-charitable purpose that creates no enforceable equitable interest in a specific person shall be construed as a power to appoint the income or the capital, as the case may be, and, unless the trust is created for an illegal purpose or a purpose contrary to public policy, the trust is valid so long as and to the extent that it is exercised either by the original trustee or the trustee’s successor, within a period of twenty-one years, despite the fact that the limitation creating the trust manifested an intention, either expressly or by implication, that the trust should or might continue for a period in excess of that period, but, in the case of such a trust that is expressed to be of perpetual duration, the court may declare the limitation to be void if the court is of opinion that by so doing the result would more closely approximate the intention of the creator of the trust than the period of validity provided by this section.”
It is generally accepted that a trust for a “non-charitable purpose” cannot exist, as it offends the “certainty of objects” requirement of the three certainties on account of there being no beneficiaries to enforce the trust. Under normal circumstances when a trust fails for offending the three certainties the property would revert to the settlor, and the provisions of the trust would no longer be carried out. Section 16 of the Perpetuities Act potentially alters this, allowing the otherwise failed purpose trust to be converted into a power for the trustee, allowing the trustee to carry out the “purpose” for which the trust was attempted to be created. Section 16(2) of the Perpetuities Act further provides that such a “power” would only exist for 21 years, and any capital or income remaining after 21 years would be distributed to the individuals who would have been entitled to the funds had the trust had been declared to have failed from the start.
Take for example the hypothetical of a Will that directs $10,000.00 is to be held in trust by the executor for the purpose of sending flowers every year to the testator’s deceased spouse’s grave on their birthday, with the residue of the estate to be equally distributed to the testator’s three children. Under the common law it is likely such a trust would fail as a “non-charitable purpose trust”, with the $10,000.00 that would have been held in trust immediately falling to the residue to be distributed to the three children. If section 16 of the Perpetuities Act were to be applied however the failed purpose trust would be converted into a power for the trustee, with the trustee having the “power” to utilize the $10,000.00 to send the flowers on the spouse’s birthday every year. Section 16(2) of the Perpetuities Act would provide the “power” to send flowers would only exist for 21 years, at which time any remaining funds would fall into the residue to be distributed to the three children.
Thank you for reading.