Abolition of the Rule against Perpetuities
The rule against perpetuities, which required that trusts not continue for longer than a few generations, has been abolished for present and future trusts, from 1 December 2009, by Section 16 of the Land and Conveyancing Law Reform Act 2009 (the “Act”). There is provision to preserve interests already affected by the rule against perpetuities.
All trusts, from 1 December 2009, can continue forever as a matter of Irish law.
This exciting development in Irish trust law has been accompanied by the introduction of legislation to enable the variation of existing trusts. This is important so that existing trusts can be modified and have their life usefully extended. Existing trusts should be reviewed to see if they may benefit from variation.
Variation of Trusts
Sections 23 and 24 of the Act which became part of Irish law on 1 December 2009 provide for the variation of trusts.
Section 23 confirms that a trustee, beneficiary, or any other person concerned (an “Appropriate Person”) may bring an application to court to vary, revoke or resettle a trust or vary, enlarge, add to or restrict the powers of trustees under the trust (an “Arrangement”).
Such an Arrangement can be made for the benefit of a person who has a vested or contingent interest if it has been approved in writing by each person who is beneficially interested and is capable of assenting.
An Arrangement can also benefit persons who lack capacity to approve, for example unborns, those whose identity, existence or whereabouts cannot be established, or a person with any other contingent interest (a “Relevant Person”).
An application can be made in relation to a trust made at any time, whether by Will, settlement or other disposition (a “Relevant Trust”), but does not include charitable trusts (which can be varied under separate legislation by the Charity Commissioners or the High Court), pension trusts, or trusts created by statute whether British, one established by Saorstát Eireann, or an act of the Oireachtas.
Notice to Revenue Commissioners
It is a pre-condition to any application that the applicant must give notice in writing to the Revenue Commissioners and/or such other persons prescribed by the court, not less than fourteen days before the hearing. Applications may be heard otherwise than in public if the court considers it appropriate.
The court shall determine an application in respect of a Relevant Trust, by either approving the Arrangement if satisfied that it would be for the benefit of Relevant Persons specified in the application and any other Relevant Persons. It can decline to make such an order where the court is not satisfied that the Arrangement is for the benefit of the Relevant Persons specified in the application or any other Relevant Persons, or the Revenue Commissioners have satisfied the court that the application is substantially motivated by a desire to avoid or reduce the incidence of tax.
In determining whether an arrangement would be for the benefit of a Relevant Person, the court may have regard to any benefit or detriment financial or otherwise that may accrue to a person directly or indirectly as a consequence of the Arrangement.
Relevant English experience
It is interesting to note that the legislation is similar in many respects to the English Variation of Trusts Act 1958. It should be noted that English legislation authorises applications for the purposes of “varying or revoking all or any of the trusts or enlarging the powers of the trustees of managing or administering any of the property subject of the trusts”, but it does not authorise the resettling of a trust as can be done pursuant to the Act.
Experienced advisors under English law have pointed out the importance of availing of actuarial evidence to quantify the financial implications for certain present or future beneficiaries, thus enabling a court to be satisfied that the segregation of a trust fund would enable a sum of sufficient value to be set aside to protect the interests of those being adversely affected by the application.
The courts have also declined to rectify settlements in cases where provision for beneficiaries was not made, as intended, due to oversight.
A positive development
Overall, this is a very positive development in Irish trust law and it would seem that the definition in the Act, of an Arrangement, is usefully broad. However, it remains to be seen what impact, if any, the attitude of the Revenue Commissioners may have in relation to applications which must be on notice to them.
A number of the leading English cases have been predicated on preservation of capital in circumstances where beneficiaries due to become absolutely entitled, were viewed as immature or improvident or both. It must be likely that applications under these principles would also arise in Ireland.