July 2009

Bermuda to remove Perpetuities limitation

The Bermuda Government recently passed the Perpetuities and Accumulations Act 2009 (the “Act”). This Act will come into operation on 1 August 2009. The Act is designed to modernise Bermuda’s laws relating to the application of the rule against perpetuities to wills and trusts. This will enable Bermuda to continue to be a premier location for international trust business.

In simple terms, the rule against perpetuities is intended to cause property to become completely vested in the hands of a beneficiary within a set period of time of the gift or bequest. This will ensure that property is not “tied up” for an indefinite period without full ownership passing to an individual. Currently, the maximum perpetuity period or “life” allowed for Bermuda trusts is 100 years.

The Act will abolish the rule against perpetuities for all trusts formed after 1 August 2009, other than trusts of land in Bermuda. A Bermuda trust formed after 1 August 2009, may be used to “tie up” property (except Bermuda land[1]) indefinitely, permitting persons, including wealthy families, to establish perpetual dynastic Bermuda trusts that may be more beneficial from an estate and tax planning perspective. The abolition of the perpetuity limitation will also make Bermuda trusts more attractive for commercial applications where the business purposes or objectives will last longer than 100 years.

The Act is not retrospective but does contemplate that a trustee or other interested party may wish to apply to the Bermuda courts to extend the trust period of a pre-August 2009 trust to more than 100 years. An individual who has already signed (executed) his or her Will, will need to re-execute his or her Will in order to benefit from the Act.

The Act also abolishes restrictions on accumulation of income by trustees. Allowing trustees to accumulate trust income for such period as they think appropriate, given the particular needs of the trust in question. The benefits of the Act will ensure that Bermuda remains a leading international trust jurisdiction.