Krebs, Randall: Bermuda Abolishes the Rules Against Perpetuities & Accumulations

. Executive Summary:
Abolition of the Rules against Perpetuities and Accumulations: Bermuda has enacted legislation that will permit the formation of dynastic or perpetual trusts. The long awaited Perpetuities and Accumulations Act 2009 (the ?2009 Act?) provides that the rules against perpetuities and excessive accumulations (?the Rule?) will not apply in relation to instruments taking effect on or after 1 August 2009, except to the extent that the instrument or power of appointment relates to land in Bermuda. In practice, since the ownership of land in Bermuda by non-Bermudians is severely restricted and controlled, the continuation of the Rule for Bermuda land is unlikely to impact the vast majority of international trusts which are created for the benefit of non-Bermudians.Pre-August 2009 Trusts:The legislation does not abolish the Rule in respect of existing instruments or trusts. The 2009 Act does seek to provide a mechanism whereby a trustee or other interested party may apply to the Bermuda courts to extend the perpetuity period of a pre-August 2009 trust, section 4 provides: Existing instruments 4(1) Nothing in section 3 is to be taken as limiting the power of the court to extend?(a) the duration of a trust; (b) the time within which an interest in property must vest or take effect; or (c) the time within which certain powers are exercisable, under an existing instrument.It remains unclear how this section will be applied in practice. Although the 2009 Act does not limit the power of the court to extend the perpetuity period, there is nothing in the 2009 Act that actually grants the courts the power to extend the perpetuity period of existing trusts. Also the courts will need to consider how it will balance selfish narcissistic settlors? desire to exercise dead hand control over property against the personal dignity and self determination of future generations.Other mechanisms will be designed by crafty lawyers to bring pre-August 2009 trusts under the new regime. For example, it is would seem that a post-August 2009 instrument exercising a ?general? power of appointment in respect of a pre-August 2009 trust could create a new perpetual trust under the 2009 Act. It is less likely that the same could be said for the exercise of a ?special? power of appointment. Unfortunately the 2009 Act does not provide any assistance, as other jurisdictions such as Delaware or England have done.It is expected that the 2009 Act will be amended within the next year to clarify the application to pre-August 2009 trusts.
2. Discussion:
Justification for the Abolition: It is evident from the language, style and structure of the 2009 Act that it is modelled in part upon England?s Perpetuities and Accumulations 2009 Bill (the ?UK Bill?). It is not surprising that the English approach has been to simplify, clarify and limit the application of the Rule. The Law Commission Report indicates that the majority of those responding to their Consultation Paper were opposed to the abolition of the Rule. By contrast the majority of trust professionals in Bermuda supported the abolition of the Rule. Why?There has been much written about the reasons for and against the Rule. It is submitted that the true primary rationale is financial. Robert Sitkoff and Max Schanzenbach?s unique empirical study of competition among US States for trust funds by the elimination of the Rule concludes: