New trust legislation coming into force next month will provide increased flexibility and will be of particular benefit to those creating long-term trusts to benefit future generations, according to law firm Boodle Hatfield. But, as the incoming legislation will only apply to new trusts, the change will effectively create two systems and will undoubtedly cause some degree of confusion, the firm cautions.
Currently in most cases the accumulation of trust income is restricted to 21 years, but the Perpetuities and Accumulation Act 2009, which comes into force on 6 April 2010, will lift this restriction. From then on new trusts will be allowed to roll up trust income throughout the lifetime of the trust, with no requirement for the trustees to distribute income to the beneficiaries
The new legislation was welcomed by Emma Haley, a solicitor in the private client and tax department at Boodle Hatfield, who said that it brings English and Welsh law up-to-date and more in line with the trusts available in other jurisdictions.
“As well as allowing trusts to accumulate income, the lifetime of a trust has been expanded from 80 to 125 years. This means that new trusts can be run on a more flexible basis to benefit successive generations for longer,” Ms Haley said.
However, as the new legislation will not apply to existing trusts she cautions that those planning to bequeath assets in trust may have to rethink their wills.
“It is quite common for people to leave property in trust in their will, yet the new legislation will only apply to wills executed on or after the 6 April and not to wills already made, even if they come into effect after 6 April on the date of death,” she said.
“People who have wills that contain a trust may wish to consider making a new will that takes advantages of the unrestricted power of accumulation and the longer perpetuity period.”