What are rules against perpetuities
When creating an offshore trust or offshore foundation for your asset protection and tax planning needs, it is vital to consider the applicable rules against perpetuities. Under common law, the rule against perpetuities is the term given where the life of a trust and its interests are limited to a period of 21 years after the death of the settlor. When forming a trust to provide for future generations it is important to be aware of the applicable rules against perpetuities that may apply.
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Rules against perpetuities explained
Rules against perpetuities in essence, forbid future interests of a trust that are not vested within the permitted time frame or lifetime of the trust. Generally the perpetuities period allows for a trust to continue vesting interests and providing for its beneficiaries up to 21 years after the death of the trust settlor.
The principle behind rules against perpetuities is to limit the gifts and interest given to remote descendants as investments conducted after the 21 year limit are considered unviable. The purpose of the rule is to prevent situations arising known as mortmain whereby the control and interests of the trust are still controlled by the deceased settlor due to the criteria and rules associated with the trust.
Certain jurisdictions will allow for settlors to establish trusts and effectively avoid the rules against perpetuities, some trusts even have the scope to remain in existence up to 100 years after the death of the last remaining relevant party.
When establishing a trust or foundation is it vital to ascertain the rules against perpetuities and understand how long the trust and its interests will be considered valid for after your death.
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