Chapter 14
Remoteness of
vesting and the duration
of trusts

Reforming the rule against perpetuities

P54 New legislation should:
(a)repeal the Perpetuities Act 1964 and provide that the common law rule against perpetuities / remoteness of vesting is of no application in New Zealand;
(b)provide a default duration of 150 years for all trusts (a shorter period may be specified in the trust deed);
(c)provide that at the expiry of 150 years from the date of the establishment of a trust, all trust property is to be vested in accordance with the provisions contained in the trust deed, or if the trust deed is silent, is to be vested in all surviving beneficiaries in equal shares;
(d)provide that trusts which include a mechanism to calculate the vesting date rather than specifying a duration shall continue until the earlier of the date resulting from the calculation, or 150 years from the establishment of the trust;
(e)provide that, notwithstanding these reforms, distributions which were valid under the Perpetuities Act 1964 at the date they occurred remain valid;
(f)update section 59 of the Property Law Act 2007 to reflect the abolition of the rule against perpetuities / remoteness of vesting;
(g)update the rule against accumulations to reflect the abolition of the rule against perpetuities / remoteness of vesting and provide a fixed accumulations period;
(h)carry over the existing exceptions allowing certain trusts to continue indefinitely despite the rule against perpetuities and apply these exceptions to the rule limiting the duration of trusts;
(i)establish a new exception to allow unit trusts to continue indefinitely (existing trusts will need to apply to the court for an extension);
(j)establish a new exception to allow energy consumer trusts to continue indefinitely (existing trusts will need to apply to the court for an extension).
Please give us your views on this proposal.

Current law

14.3The Perpetuities Act 1964 modifies the rule against perpetuities, but does not define the rule and does not replace it with a statutory code. Familiarity with the common law rule is therefore necessary to understand the effect of the Perpetuities Act and the current law.

14.4The rule against perpetuities is one of a collection of rules and restrictions developed by the courts to promote unfettered ownership and free transfer of property. The classic statement of the rule is this: no interest is good unless it must vest, if at all, not later than 21 years after some life in being at the creation of the interest.314  This technical rule is underpinned by a more fundamental and abstract principle of land law, that the “freehold must not be in abeyance.”315

14.5The Property Law Act 2007 and its predecessors have reformed or restated many common law rules relating to property. The modern statement of the law regarding future interests is contained in section 59:

59 Future estates and interests
(1) Future estates and interests in property may be created that take effect at a future time;
(2) Subsection (1) applies subject to the rule against perpetuities and the Perpetuities Act 1964.
14.6In complying with the rule against perpetuities, trusts must establish a date for the vesting of trust property. This provides a de facto maximum duration, as the trust will not continue after the final distribution of trust property.316  The date may either be fixed, or calculated with reference to someone’s life (or the lives of more than one person). Under the common law a fixed date could not exceed 21 years from the date of settlement.317  This has been extended to 80 years under the Perpetuities Act.
14.7The rule against perpetuities is a creation of the common law governing property. However, the courts of equity also developed a distinct rule precluding perpetual trusts.318  This distinction does not come through clearly in the Perpetuities Act 1964 and subsequent legislation, where the phrase “rule against perpetuities” is used to refer to both the rule against remoteness of vesting, and the rule against perpetual trusts, depending on the context.319 Indeed, some modern commentators consider that the rule against remoteness of vesting and the rule against a perpetual trust are two elements of the same rule, that is, the rule against perpetuities.320  However, the two rules are conceptually distinct. For example, a future interest created to take effect beyond the perpetuity period will not be valid by reason of being created to benefit a charity, even though a charitable trust may exist “in perpetuity.”321
14.8A related rule with ramifications for trusts is the rule against excessive accumulations. This provides that a direction to accumulate funds is void if it extends beyond the perpetuity period. This is of little relevance in private trusts, but is significant in relation to charitable trusts and other trusts that are able to exist in perpetuity. The Perpetuities Act reformulated the common law rule by providing that a direction to accumulate and dispose of funds will be valid if the disposition is valid, and will be invalid if the disposition is invalid.322
14.9The Perpetuities Act made a number of modifications to the common law position on remoteness of vesting. The two most significant are the ability to specify a perpetuity period of 80 years or less as an alternative to the perpetuity period of a life in being plus 21 years; and the “wait and see” approach to interests which may or may not vest within the perpetuity period. Such interests are valid if they do vest within the perpetuity period, and may be modified in some circumstances to enable this to occur.323  Under the rule in Saunders v Vautier324  a trust can also be varied by the agreement of all beneficiaries, to provide for an earlier distribution.325  This means that since the Perpetuities Act commenced, most dispositions which would otherwise have been invalidated under the rule against perpetuities are able to be rescued through modification.


14.10Even with the amendments under the Perpetuities Act, the rule against perpetuities is complex and causes considerable problems in practice.326  Most obviously, it causes uncertainty and there is a risk it may invalidate legitimate dispositions. It is not well understood, and so trust deeds may inadvertently fall foul of its requirements. The rule is also difficult to reconcile conceptually with the modern discretionary trust. The pertinent question is not whether the rule should be reformed, but how. In more abstract terms, we are considering how the law should approach the possibility of perpetual trusts and the issue of contingent or unvested interests.

Options for reform

14.11The following options have been considered:
(a)reforming the current rule and retain some limit on remoteness of vesting;
(b)abolishing the current rule but retain some limit on the duration of trusts; or
(c)abolishing the current rule completely to allow perpetual trusts and indeterminately remote vesting of future interests.


14.12Submitters to the Third Issues Paper considered that the current rule is complex, poorly understood, and causes significant problems in practice. All advocated reform, and nearly all supported retrospective reform to create a single rule applying whenever a trust was created. It was submitted that unless the reform is retrospective, the situation will become more complicated to apply, rather than simpler and easier to understand. However, it was also noted that the reform should not retrospectively validate trusts previously held invalid, or affect previous distributions. Submitters also noted conceptual difficulties with the rule, as it hinges on the concept of remoteness of vesting in relation to a life or lives in being, which is not well understood.

14.13Many submitters considered that the original policy rationales are no longer persuasive in the modern context and that the rule should be abolished entirely. However, the New Zealand Law Society expressed the view in its submission that if wide consultations were carried out, the New Zealand public would be likely to share the concerns that lead to the retention of the rule in the United Kingdom – that is, concern about “dead hand” control and wealthy individuals locking up assets in trusts indefinitely.

14.14Those submitters who advocated abolition stated that if this approach was not adopted, their preference would be an alternative rule which limited the duration of the trust to a specified maximum period of 100 to 150 years (to take account of increased life expectancies), and that this rule should apply only to private trusts.

14.15The Ministry of Social Development considered that there were strong policy reasons for the rule, but that it was complex and should be simplified. Its preferred reform was a new rule which would limit the duration of a trust to a maximum of 80 years.

14.16Over time the conceptual distinction between the rule against remoteness of vesting and the rule against perpetual trusts has been eroded. However, trust practice has continued to evolve over the past century, and the distinction may once again be useful.327  This is particularly so in the modern discretionary trust that is intended to facilitate a managed but flexible transfer of wealth between generations, possibly for particular purposes such as education of the settlor’s descendants or the retention of a family farm. For many settlors, the intention is that the trust will continue until its funds are exhausted or its property is distributed to beneficiaries on their initiative. The question of remoteness of vesting is therefore less apposite than the question of the duration of the trust.

14.17Our proposal would repeal the outdated rule against remoteness of vesting, and create a statutory maximum duration for trusts of 150 years. This would address the practical concerns expressed by those who favoured reform or complete abolition, through providing a bright-line rule that is easy to understand and promotes certainty in trust dealings. It would prevent perpetual trusts, while allowing a high degree of flexibility for settlors to dispose of property as they choose.

14.18The new rule will apply to all trusts currently in existence, regardless of when the trust was created. However, it would not validate trusts previously held invalid and will not affect prior distributions. The rule will therefore “rescue” existing trusts that fail to comply with the current rule, without requiring modification of the trust deeds.

14.19We have considered the alternative time period of 125 years, which has recently been adopted as a maximum perpetuity period in the United Kingdom. However, given increasing life expectancies, we prefer an upper limit of 150 years. This will allow most trusts established for the duration of a life in being plus 21 years to continue until their natural end.

14.20The court currently has powers to vary the vesting date of a trust, and some trust deeds also allow the vesting date to be varied by trustees. The variation provisions in new legislation will be broad enough to allow trustees to apply to the court to extend the duration of the trust in light of the new statutory maximum. This will allow extension where appropriate without creating complex transitional provisions for existing trusts.

14.21In our view, there are strong policy reasons to retain some form of limit on the duration of private trusts. There is an important difference between trusts that continue for two or three generations and trusts that continue indefinitely. We consider that allowing perpetual trusts could potentially create problems for trust administration and undermine the interests of the current generation of beneficiaries. It will be difficult for trustees to discharge their duties in a perpetual trust because the interests of successive generations of unborn beneficiaries would need to be considered. An ever-increasing class of beneficiaries would eventually make a trust administratively unwieldy, or invalid because of a lack of certainty of objects. The greater the number of beneficiaries, the more difficult it would be to vary the trust. There is also a risk that settlors may inadvertently create perpetual trusts, preventing the more immediate beneficiaries from enjoying property. For example, a disposition “to my children and their descendants” would create a perpetual trust though the settlor’s intention may be only to benefit the next few generations.

14.22As part of the preferred proposal, it would also be necessary to update section 59 of the Property Law Act, which currently allows future interests to be created subject to the rule against perpetuities. Reforms to this section could require all future interests to take effect within 150 years of their creation, or alternatively could provide that future interests may be created to take effect at any future date. The first option would be closer to the status quo and would retain a modified form of the rule against remoteness of vesting. The second option is closer to a full repeal of the rule.

14.23This reform will have implications for property transactions which involve deferred or contingent interests, such as an option to purchase.328  This is an area where the traditional rationales of the rule against remoteness of vesting conflict with modern commercial practice. For example, in commercial subdivisions it may be desirable to create indefinite options to purchase, as a concomitant to an easement or covenant. In addition, because the rule is concerned with the date interests take effect and not their duration, it can cause confusion as to what is included and what is excluded. For example, it is generally said that the rule applies to options, but not to easements. However, the grant of an easement to take effect when a property is sold or subdivided would fall foul of the rule, as the interest may never take effect. This is not well understood, and causes confusion as well as potentially altering the burdens and benefits in property arrangements through voiding some elements of the arrangement (such as an indefinite option to purchase), but not other elements (such as a covenant). For these reasons we prefer the second option presented and suggest repealing section 59(2) of the Property Law Act.
14.24It is proposed that the rule against accumulations be retained but updated for consistency with other reforms. The new rule would clarify that trustees may accumulate income, provided the trust deed so allows and provided the accumulated income is distributed upon the termination of the trust. The proposed approach will also clarify the position in relation to charities and other allowable perpetual trusts. The position at common law is that a direction requiring a charitable trust to accumulate income beyond the perpetuity period is a fetter on the use of the fund for charitable purposes and is therefore void.329  The case of Re Armstrong330  establishes that this position continues in New Zealand notwithstanding the Perpetuities Act. It is proposed that legislation will restate this principle and extend it to other non-charitable perpetual trusts, through providing that a direction to accumulate income is void if it extends for longer than the accumulation period. However, a rule which allows accumulations for 150 years rather than 80 years is a significant change. There may be an argument that the accumulations period for charitable trusts should be reduced, based on the idea that a binding direction to accumulate is a fetter on the charitable use of the fund. We invite comments on this issue.
14.25There is a widespread view that commercial trust arrangements should be allowed to continue indefinitely. Trusts provide a useful way of creating commercial structures run for the benefit of a class of people, such as energy trusts, superannuation schemes, insurance schemes, or unit trust investment structures. It is argued that there is no reason to limit the duration of these sorts of arrangements and any rule that does so creates unnecessary complexity. For some commercial activities, such as insurance, an alternative to a trust structure is a co-operative company, and these can continue indefinitely. Superannuation schemes are currently exempt from the rule,331  which does not appear to have created any problems, suggesting that the rule can be abolished for similar trusts without adverse effects. Notwithstanding these arguments, there are real difficulties in defining “commercial trusts structures” to exclude these from a general rule. Many submitters suggested that the rule should only apply to private trusts; however it is also unclear how “private trusts” should be defined.

14.26In our view it would be simpler to have a default rule for all trusts, and list specific additional exceptions, such as unit trusts and energy trusts. If the maximum duration is of a sufficient length, such as 150 years, then this will ameliorate the current problems with remoteness of vesting and allow for commercial certainty in developing trust structures.

14.27In recent years, many jurisdictions have moved further away from the rule against perpetuities.332  The United Kingdom is notable for not following this path, and reforming rather than removing the rule through the Perpetuities and Accumulations Act 2009. Some submitters expressed a view that New Zealand should follow the global trend and allow perpetual trusts. Those who favour this option acknowledge that trusts of long duration may create problems, such as a growth in the number of beneficiaries and the fragmentation of interests in real property, or the risk that the purpose for which the trust was established will cease to be relevant as times change. However, it is argued that these issues could be addressed through giving the courts broader variation powers or the power to wind up a trust at some point in time after it was established (for example, 80 years, as in South Australia). We consider that this proposal would not be best suited to New Zealand’s circumstances, particularly because of the popularity and prevalence of discretionary family trusts. There are advantages in a clear rule that provides certainty at the outset of the creation of the trust. We also note that if New Zealand were to abolish the rule against perpetuities, rather than reform it, we would be the only country to do so in the context of a tax system that does not otherwise discourage trusts of long duration.333  We consider that this would be too radical a reform, and would open the door to perpetual trusts and extremely long term trusts. We therefore propose the more modest proposal of a statutory limitation on the duration of trusts.
314JC Gray The Rule against Perpetuities (4th ed, Little Brown & Co, Boston, 1942) at 201.
315See Freeman d Vernon v West (1763) 2 Wils KB 165. For the prohibition on inalienable estates see Washborn v Downs (1671) 1 Ch Ca 213. The principle that the freehold must not be in abeyance also informed another rule prominent in the 18th century, known as the “rule against double possibilities”. This rule provided that an interest was void if it depended upon more than one successive contingency. In New Zealand, the rule against double possibilities was repealed by the Property Law Act 1908. This increased the importance of the rule against perpetuities as the primary means of voiding remote dispositions. The primacy of the rule against perpetuities was confirmed in s 18 of the Perpetuities Act 1964, which provided that the rule against perpetuities applies to a possibility of reverter on the determination of a determinable fee simple, or the possibility of resulting trust on the determination of other determinable interests.
316For a more complete discussion of the rule against perpetuities and implications for the duration of trusts, see Law Commission Perpetuities and the Revocation and Variation of Trusts: Review of the Law of Trusts – Third Issues Paper (NZLC IP22, 2011) at Part 1.
317See Cadell v Palmer (1833) 1 Cl & F 372, 6 ER 956.
318Also known at times as the rule against indestructibility of trusts or the rule against inalienability. This rule had its most common application in relation to non-charitable purpose trusts. See David Hayton, Paul Mathews and Charles Mitchell (eds) Underhill and Hayton: Law Relating to Trusts and Trustees (17th ed, LexisNexis Butterworths, Bath, 2006) at 254−255. For an example of the general rule limiting the duration of trusts as applied to an allowable purpose trust, see Re Dean (1889) 41 Ch D557.
319For example, most treaty settlement legislation includes a provision to the effect that neither the rule against perpetuities nor the Perpetuities Act 1964 will prescribe or restrict the period during which a trust created under that legislation may exist. In contrast, the Perpetuities Act 1964 itself appears concerned mainly with the implications of the rule for remoteness of vesting. Te Ture Whenua Māori Act 1993 contains perhaps the clearest example of a mixed reference:
235 Trusts not subject to rule against perpetuities: 
No trust constituted under this Part of this Act shall be subject to any enactment or rule of law restricting the period for which a trust may run.
320See H Ford and W Lee Principles of the Law of Trusts (Law Book Company, Sydney, 1983) at [740].
321Attorney General v Webster (1875) LR 20 Eq 483.
322It is arguable that the common law rule was never in effect in New Zealand due to its amendment by the Accumulations Act 1800 (UK), which was held to apply in New Zealand in The Trustees, Executors, and Agency Company (Limited) v Bush and Anor(1908) 28 NZLR 117. The provision in s 21 of the Perpetuities Act 1964 can therefore be seen as reverting to the common law rule and departing from the statutory variation passed by the Parliament of the United Kingdom.
323This is known as cy pres modification. See Perpetuities Act 1964, ss 9−12.
324Saunders v Vautier (1841) Cr & Ph 240; 41 ER 482.
325If any of the beneficiaries are minors or otherwise incapacitated, the court may approve a variation. See the Third Issues Paper, above n 316, at Part 2 and at ch 9 of this paper.
326In California the Supreme Court has famously gone so far as to hold that a solicitor is not liable for negligence to beneficiaries when drafting a disposition that is intended to, but does not, comply with the rule against perpetuities: Lucas v Hamm (1961) 56 Cal 2d 583; 364 P 2d 685; 15 Cal Rptr 821.
327It has been said that: “The common law rule against perpetuities was directed at the problem of the vesting of future interests and bears little relationship to the problem of inefficient use of resources due to unforeseen changes in circumstances. The problem of changed conditions relates to the duration of fragmented interests.” (Gregory Alexander “The Dead Hand and the Law of Trusts in the Nineteenth Century” (1985) 37 Stan L Rev 1189).
328The common law rules relating to options to purchase have been modified by s 17 of the Perpetuities Act 1964.
329Martin v Margham (1844) 14 Sim 230, followed in The Trustees, Executors, and Agency Company (Limited) v Bush and Anor (1908) 28 NZLR 117 at 119−120: “where there is a trust for charitable purposes and a direction to accumulate the income or a portion of it indefinitely, or for any period in excess of that allowed by the rule against perpetuities, such direction is not a trust in favour of the charity, but is a fetter on the charitable trusts and prevents the use of the property for charitable purposes during the period for which the accumulation is directed.”
330Re Armstrong [2006] 1 NZLR 282 (HC) (also cited as Perpetual Trust Ltd v Roman Catholic Bishop of the Diocese of Christchurch).
331Perpetuities Act 1964, s 19.
332The rule has now been abolished in six Canadian states and 21 states within the United States of America, as well as Ireland and South Australia. The Law Reform Commission of Nova Scotia has also recommended abolition: Law Reform Commission of Nova Scotia The Rule Against Perpetuities (Final Report, 2010).
333For example, the report by the Irish Law Commission recommended abolishing limits on the duration of trusts on the basis that the tax system provided sufficient disincentives for trusts of long duration, including through an annual tax on the capital held in trust. This argument for abolition does not apply in New Zealand. See Law Reform Commission of Ireland Report on the Rule against Perpetuities and Cognate Rules (LRC 62-2000).