Royal Lives Clause: is your trust running out of time?

In older trusts, the “Royal Lives Clause” was a common way of ensuring that a trust could continue for as long as legally possible.

Royal Lives Clauses were commonly used in trusts during the early life of Her Majesty Queen Elizabeth II. Following her recent death, it is possible that the terms of the Royal Lives Clause in your trust (if applicable) mean that it might may now have a limited period left to run.

The Rule against Perpetuities (the Rule)

The Rule prevents a settlor (the person making the trust) from tying up their assets in a trust indefinitely (or, “in perpetuity”). It ensures that trust assets pass to a beneficiary before the end of the perpetuity period, after which the trust ends.

A trust in breach of the Rule (or an aspect of the trust in breach) may be void. Remedying a void trust can require a court application, costing time and money. Subject to how the (void) trust assets have been handled, there may also be unwanted and detrimental tax consequences for those involved, as well as a potential breach of trust by the trustees.

It is therefore important that the Rule is adhered to and settlors, beneficiaries and trustees are aware of the specifics of the Rule as it applies to their trust.

The Perpetuity Period

The Rule has developed over time and the life of a trust will vary depending on when it was created. For example, legislation provides that trusts effective after 6 April 2010 will normally last for a fixed 125 year period.

Prior to this, there have been various perpetuity periods applicable to trusts. Of relevance here is the use of the older, common law perpetuity period of lives in being plus 21 years as a means of calculating the length of a trust. The use of such a perpetuity period meant that the trust would end 21 years after the death of the last living individual specified in the trust instrument, who was alive when the trust was created.

It is important to understand the age and type of trust you are dealing with in order to establish what law applies and consequently, the length of the perpetuity period.

The Royal Lives Clause

A trust perpetuity period being linked to the lives of specified individuals threw up several difficulties in practice.

For example, life expectancy in the past was much shorter than it is now. A trust period that was linked to the life span of the living members of a normal family in the 1920s would likely produce a much shorter trust period than the fixed legislative period we have today.

To assist in lengthening the trust period as far as possible, it was common to tie the trust period to the lives of the Royal Family, hence the term “Royal Lives Clause”. This was done because of the better healthcare available to, and longer life expectancy of, a Royal Family member compared to a non-Royal.

Additionally, it was less common in the past for a non-Royal family to have complete and unquestionable copies of its family tree. This could cause problems when trying to determine exactly when the final person in that family line had died. There are, in contrast, comprehensive and readily available records of the “lives in being” of the Royal Family at any given time, so where a Royal Lives Clause was used in a trust, the perpetuity period was more easily established.

A Royal Lives Clause can appear in many different forms. An example would be a clause that defines the trust period as: “…ending on the expiration of 21 years after the death of the last survivor of the lineal descendants of Queen Victoria living at the time of my death”.

Looking at that clause, if the settlor died in 1930, then the perpetuity period would be tied to the last to die of Queen Victoria’s living descendants on that date. In this example, that would have been Queen Elizabeth II, meaning that the trust has 21 years to run from her death. However, if the settlor died in 1950, the perpetuity period would be tied to those Royals alive then, some of whom (including the current King Charles III) are still alive. As a result, the 21 year period (referred to above) would not yet have started to run.

Conclusion

Given that Queen Elizabeth II had such a long life, it is possible that some older trusts will have Royal Lives Clauses in which she was the last surviving person that the trust specified as a “life in being”. It is important that the trust period of any older trust document is reviewed, in order to assess whether a Royal Lives Clause has been impacted in light of recent events.

The Birketts View

The recent death of Her Majesty Queen Elizabeth II will have far reaching legal consequences, beyond those which were immediately obvious. It is important to understand your trust, including how long it has left to run. Overlooking a soon-to-expire trust period can cause difficulties that could have been avoided with prior planning.

If you need advice on any aspect of trust law, including the contents of this article and how we can help you to plan when a trust is due to expire, please get in contact with one of the authors.