Quaintly named, the ‘rule against perpetuities’ is derived from a seventeenth century English land law case in which Earl of Arundel sought to provide income for his younger children with inheritance of his estate on death doomed to pass to his eldest son Thomas, who was insane. The result: the rule against perpetuities; assets cannot be tied up in a trust for ever.
This legal rule is founded on sound economic principles. There should be a limit on how long property rights should be tied up. The ‘creative destruction’ of economic growth, seeing existing assets repurposed for new use, requires assets to be freely transferable.
In New Zealand, the perpetuity period is now set by statute: 125 years. Family trusts seldom outlast a single generation. At law, they cannot last more than 125 years.
This time limit does not apply to charitable trusts. A charitable trust, once established, cannot die, though its nature may be changed.
This rule bedevilled the Tawhiri Trust, a charitable trust established in 2008 for the sole purpose of restoring a then eighty year old classic yacht: Tawhiri.
The intent was to restore the yacht to its former glory, then be used by ‘the sailing youth of Nelson/Tasman.’
The High Court was told fundraising for restoration costs assessed at $300,000 were unsuccessful. With free storage on council owned land in Nelson coming to an end, there was a risk the vessel would become a total ruin.
An Auckland-based descendant of the Markham family, previous Tawhiri owners, came to the rescue. He paid for transport of the vessel to covered storage in Auckland.
His offer to buy the Tawhiri ran into a legal snag; the Tawhiri trust deed contains no power to sell. Selling the Trust’s only asset would amount to destruction of the Trust’s essential purpose, something not permitted under rules governing charities.
The High Court gave Charitable Trusts Act approval for sale to the Markham family on evidence that the buyer would be a newly created charitable trust with this new trust committing to make the Tawhiri, when seaworthy, available annually for youth selected by sailing clubs from the Nelson/Tasman Bay area.
Terms of any sale were not disclosed.
re Tawhiri Trust Board – High Court (5.03.25)
25.079