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30 Dec

EQUITY AND TRUST 2.6 PERPETUITIES AND ACCUMULATION

PERPETUITIES AND ACCUMULATION.

Although this topic is very annoying, academic and superfluous, if you can read the full cases, you may understand the underlining reasoning and may (most importantly) be fine. Moving on:

No interest is good unless it must vest, if at all, not later than twenty-one years after some life in being at the creation of the interestLord Nottingham in the Duke of Norfolk’s Case.

This was reiterated by the HOL in Cadell V Palmer. Duke of Norfolk’s case although certain prior cases like Taltarum’s Case, Manning Case, Lampet’s Case and Child V Baylie show that the courts have (sometimes) been confused and had to wrestle with this rule as it became hard to interpret. The counsels too became confused and almost vitiated gifts and agreements in a bid to run away from the application of this rule. See especially the Taltarum’s case.

This rule seeks to prevent the testator from inhibiting barring. Also, it reduces the likelihood of paternalism and prevents a man from ensuring that property remains in his lineage. The rule just ensures that property should vest within a particular time. Property here is not just land. Section 2 of the Wills Law of Lagos entitles a dependant of a deceased to come forward and be catered for by the court from the deceased’s estate. This is a welcome development.

First formulated to regulate settlement of lands and prevent lands from being kept out of the market for too long (thereby becoming scarce) and to keep the land productive thereby preventing restraints on alienation.

Lemme give an example: Mr Chima Okwuoma, a multi-billionaire may discover that he has too much that he cannot even finish even if he decides to travel round the world and stay in the most expensive hotels. So he decides to arrange his properties in such a way that his next 100 generations would never suffer. He can create trusts like “my Okwuoma-5-star Housing Estate at Ikota to John to hold in trust for my First Son Tanko till he marries…, my Bulletproof Private Jet NP220 to my daughter… etc.” that is probably alright. Now, what if he creates a trust “for my great grandson’s grandchildren”, or what if gives a gift to any person that comes from his lineage 200 years from now. Etc. what if he has over 900 plots of land in various places around Abuja and starts to give “a plot to each of my children, their children, their children’s children, their great-grand-children and their children’s great-grand-children but if land still remains; to anybody else that can be traced to my blood in the future”.

What this means is that in addition to dictating how property is to move in the future, he is keeping the wealth within his family. The rule against perpetuities and accumulation can kick in.

Initially, the rule restricted the controlled gifting to 21 years. So if you are wishing to vest a gift, you should restrict your vesting to not later than 21 years from when you are making a gift. E.g. Mr Chima can give his son (who is alive) but a gift to his “great-grand children’s children” would fail because the time the gift is to vest is tooo remote in the future.

The rule has been praised for

  • Preventing dead hands from controlling how the present generations decide to deal with property. E.g. a person (in an attempt to sell the land his father gave him) may learn that the land (although not family property) was given by his great grand-father to his grand-father to his father who gave it to him but he cannot sell it because according to the way the great grand-father gave the land, it is to “all first children of my first male heirs for life”. This is what the rule is trying to prevent.
  • Prevent concentration of wealth within a family. See the Chima Situation.
  • Balancing the ability of one generation to prescribe how the future generation should deal with property against the desire of the present generation to shape its destiny. See Simes: Public Policy and the Dead Hand. (1995) p. 58.

The rule was criticised for being too harsh, preventing freedom to deal with property, etc. It has been reviewed in some jurisdictions and abolished in others. Market economy posits that forces in the market be determined by demand and supply. The government should have little or no interference with economic activities and transactions. Individuals are free to make economic deciions. Laissez Faire. Adam Smith posits that doing such would maximise the economic situation of the economy, promote division of labour and competition. Noting that government should only provide public goods.

The First reform is the wait and see reform: whereby the validity is not determined by possibilities but by what actually happens. To wait and see if the interest would actually vest-Section 3 Perpetuities Act. Section 3 (4) defines life in being as the person in whose favour the disposition was made… in the case of disposition to a class, a member or potential member of the class

Communism where the government plans the economy. As was seen in the former soviet union.

Natural law school: is ethical philosophy… an ideal to which humanity aspires… According to Chrysippus of Soli, to live virtuously means to live in accord with one’s nature. John Locke we should acquire only as is good enough. Looking at what is fair and right.

Positivists say that the law is whatever it is sentiments notwithstanding. Freedom of decision as to how wealth should go. Is a system of philosophy based on experience and empirical knowledge. Traceable to Auguste Comte

In modern societies, taxation and legislations prevent dead hands from perpetually controlling property.

In Nigeria it seems to have originated from primogeniture. Being a feature of agrarian societies. Land needs to be available for transfer and promotion of commerce. In Nigeria, this is seen in relation to the concept of Family property.

In modern day, it is nearly impossible for property to be withdrawn from commerce.

Section 5 of the perpetuities and accumulation Act of 2009 changes the period to 125 years.

As times progressed, the courts have declined to uphold the rule against perpetuities and some countries have even abolished it. This is not because the rule is unjust but because in today’s world, it is of little or no effect. See for example the Chima example I gave above if it was to apply in today’s world; taxation on property would first hit Mr Chima’s fortune, government may acquire his lands, the beneficiaries may sell the land ( contrary to stipulation but who can/wants to sue anyway?), a judgment creditor may attach the property to satisfy a debt, etc. before you know it, 100 years from Mr Chima’s death all his properties may have been dissipated.

See Cooper V Stuart where the court noted that this rule does not bind the crown (i.e. government). The Court in Sauders V Vautier also noted that the rule is of little relevance as all the beneficiaries of full age and capacity can combine to put an end to the trust and divide the capital/property amongst themselves. See generally; the Law of Property Act, 1925 England.

Also, in present age, there is no incentive to accumulate and it is quite difficult to accumulate as modern commerce and activities makes the property accessible to the public.

The Perpetuities and Accumulation Act of 1983 of Manitoba (A province in Canada) has abolished the rule against perpetuities. Also abolished the rule in Whitby V Mitchell and the abolished the Thellusson Act 1800. Following the Manitoba Law Reform Commission Report on the Rule against Accumulations and Perpetuities. Noting that they are less concerned about the rule, most legal practitioners are ignorant of the rule and that most people are motivated by tax advantages and avoidance.

In a country of immigration, dissolution of marriages, division of property mortgages and a vast array of commercial transactions, the rule can be regarded as irrelevant.

Capital transfer Tax, CGT, PIT, Investment Tax, Tenement Rates, Land Use Charges, Local government taxation, compulsory acquisition of property for public purpose and so on would bite on such properties and with time, they must change hands or disappear into thin air.

 

Isochukwu

Quite eccentric really

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