Perpetuities and Accumulations Bill [HL]

I agree with the Minister that the proceedings we have started today are important, and I say that for the same reasons that he did. This is the first Bill dealt with under the new procedure for Law Commission Bills. It is a pilot scheme, a trial to see whether the new procedure works. If it does, that will reduce the amount of time spent by Law Commission Bills on the Floor of the House, which is likely to make it possible to get more non-controversial Law Commission Bills enacted, and to get them enacted more swiftly than they are now. That would be very desirable. This Bill, which is technical and, I believe, non-controversial, is based on the Law Commission’s report that was published 11 years ago, in 1998. Proceedings should have been possible that meant it could have been enacted within a matter of two or three years of the publication of the report. Of course controversial or important Bills, even though based on Law Commission reports, will continue to go through the usual procedure, as they should. That will deal with Bills on such recent Law Commission reports as its report on murder or that on the law of corruption. I turn to the Bill itself. Perpetuities and accumulations are a subject that I am familiar with; indeed, I am prepared to say that looking at it now makes me quite nostalgic. Trusts were a substantial part of my practice as a member of the Chancery Bar, and trusts require knowledge of the rule against perpetuities and the rule against accumulations. The rule against perpetuities limits the time for which money or other property can be held in a trust, and the rule against accumulations limits the time for which income yielded by assets held in those trusts can be added to trust capital instead of being distributed to beneficiaries as income. However, while those principles are in fact both quite simple, the mechanism by which they have been applied is immensely complicated. I will not add to what the Minister has said about how those rules operate, but they are plainly complicated and anachronistic and need to be simplified. I have some doubts about the detail of two of the Law Commission’s proposals that are proposed to be enacted in the Bill. My first doubt, which I share with the noble Baroness, Lady Deech, concerns whether the perpetuity period of 125 years is too long. I think that it plainly is because if such a rule had been in force in the past, it would mean that a trust set up in 1885 could still be in effect for a few more months. That seems to me pretty absurd. I therefore agree with the noble Baroness that this is a longer period than is needed. However, I do not agree with her that no perpetuity period should be imposed. I think it is desirable that there should be a limit on the time during which any owner of property can direct what happens to that property through creating a trust. If somebody wishes to set up a trust for a young, seriously disabled child who will never be able to manage his or her own affairs, and who might have a long life, that might suggest a maximum period of something like 100 years, given that a large number of people now live into their 90s. However, we can look at that point in detail later. I also have doubts about the complete abolition of the rule against accumulations. The origin of that rule was the decision of a wealthy banker, Mr Thellusson, to leave a large part of his estate on trust to accumulate the income for the whole period of the trust, which was until the death of his last male descendant living at Mr Thellusson’s death. In theory, the effect of compound interest could have produced a gigantic sum of money by the end of the trust period. That is not so much a danger nowadays given the costs of running a trust, but I think it is still plainly undesirable that property should be locked up so that it cannot be applied for the benefit of anybody over a long period. While Mr Thellusson’s will was, to say the least, an eccentric action, under this Bill as it now stands there would be no way of preventing a new Thellusson creating a similar trust, which I do not think is desirable. My own preference is to allow the accumulation of income throughout a trust period but only as a power for the trustees to implement, not as an obligation imposed on them by the settler or the testator. From time to time it may be in the interests of the beneficiaries that the income be accumulated rather than distributed, but that should never be unavoidable. I noted with interest what the noble Lord, Lord Hodgson, said. That is a matter of detail to be dealt with by the Special Public Bill Committee when that is set up, as it shortly will be, and it will need considering. I hope that he will give evidence on that matter to that committee when it is formed. The noble Baroness, Lady Deech, made an important point concerning what to do with the existing trusts, which may go on for many years. I do not think there is an absolute solution to that, but in some circumstances at any rate it may be possible for trustees to opt into the new law and get out of the more complicated old one. Those are the sort of technical issues that ought to be left to the Special Public Bill Committee, not debated on the Floor of your Lordships' House. Subject, therefore, to the points that I have just mentioned, I am strongly in favour of the Bill and in principle I am completely in favour of it. My concerns rest only on relatively subsidiary points. I hope that the Bill will now be formally sent on its way in a day or two’s time to the Special Public Bill Committee. I look forward to the works of that committee.