The Trusts (Amendment) Act 2015
History was made today, 16th June 2015: hundreds of years of common law were swept away in the Isle of Man when the Trusts (Amendment) Act 2015 (“the Act”) took effect. It has taken some time to come to fruition, and addresses a few important areas:
Rule Against Perpetuity: Gone, But Not Forgotten
For hundreds of years, trusts have been caught by a prohibition against the possibility that interests might vest outside a permitted perpetuity period. English law addressed it in part in the Perpetuities and Accumulations Act 1964, largely reproduced in the Isle of Man in the Perpetuities and Accumulations Act 1968.
While Manx law lengthened the possible statutory perpetuity period to 150 years in the Trusts Act 2001, and English law has lengthened it to 125 years, the entire rule has been abolished or has never even existed in the Channel Islands, several U.S. states and Ireland.
What it Means in Practice:
New trusts can be created without being restricted to a particular perpetuity period. The legislation also permits, with careful drafting, existing trusts to be amended to extend or remove the perpetuity period already applicable to them. This could also be very helpful for trusts moving to or from other jurisdictions or trust assets moving to or from trusts governed by non-Manx law.
Where it is necessary for a trust to be limited in effect so that vesting occurs within a set period can still be accommodated in most cases by careful drafting.
It also permits “dynastic” trusts to be created under Manx law: these have proved highly attractive to clients in Asia and the United States, for example.
Nightmare “Two-Trustee Rule”: Just a Bad Memory
This rule under sections 36 and 38 of the Trustee Act 1961 has gone. These prevent the replacement or retirement of trustees under statutory powers so as to leave a trust with only a single trustee that is not a trust corporation. (Consequent changes were also made to the Settled Land Act 1891, fortunately rarely applicable.)
What it Means in Practice:
Retirement and replacement of trustees will be easier in the future, and traps causing them to fail will disappear.
Historic breaches of the rule are not remedied but thoughtful drafting could remedy possible historic issues in many cases going forward.
The express terms of the trust instrument may still impose a requirement for more than one trustee, however.
Manx “Firewall” Legislation Catches Up with the Leading Standard
The Trusts Act 1995, when passed, put the Isle of Man with leading jurisdictions in excluding the effect of foreign law (especially succession law). Since then, other jurisdictions have passed legislation that addresses specific concerns about the adequacy of the earlier forms of the legislation. This includes excluding the impact of orders obtained in other courts and widening of the law to cover matrimonial matters as well as succession and other claims affecting beneficiaries – not just the settlor.
What it Means in Practice:
The Isle of Man has been at a competitive disadvantage for some time. While the courts would in practice apply the Acts in similar ways, the perception in London and elsewhere seems to have been that the wording of the legislation in some jurisdictions other than the Isle of Man went a little further in assuring the settlor that the trust was protected from foreign law.
The changes are not intended to put the Isle of Man in the ahead of all other jurisdictions, but to bring it up to what is widely seen as the leading standard.
We can advise on the specific effect of the Act, generally or in particular cases.
NOTE: This note is for information only and no decision should be taken, based upon it, to take or refrain from taking any action: professional advice should always be sought.