6 - Charitable and Non-Charitable Purpose Trusts

Question 1

What is a purpose trust, and how does it differ from trusts for individuals?

Answer 1

A purpose trust is an express trust where the settlor’s intention is to achieve an objective, aim, or purpose, rather than directly benefiting individuals.

Purpose trusts follow the general rules for express trusts, including a valid declaration of trust and the property being put in trust.

Question 2

What are the validity rules for the declaration of a trust (not purpose trusts)?

Answer 2

Certainty of intention: Clear intent to create a trust.

Certainty of subject matter: Clear what property is held in trust.

Certainty of objects: In purpose trusts, the object is the purpose itself. The purpose must be clear.

Beneficiary principle: Generally, trusts must benefit individuals.

Perpetuities (rule against inalienability): Property must not be locked away in trust for too long.

Formalities: Trust declarations involving land must comply with s53(1)(b) of the LPA 1925

Question 3

What is the rule against perpetuities, and how does it apply to non-charitable purpose trusts?

Answer 3

The rule against perpetuities prevents property from being locked away in a trust for too long.

For purpose trusts, property must not be rendered inalienable for more than 21 years (the rule against inalienability of capital).

Purpose trusts are void unless they:
- Specify that the trust lasts no more than 21 years, or
- Allow the trustees to spend all the capital, thus ending the trust at any time.

Example of a void trust: “I give £40,000 to my Trustees to maintain the changing rooms at Beeston tennis club.” Trustees must generate income, locking capital away indefinitely.

Example of a valid trust: “I give £40,000 to my Trustees to build changing rooms at Beeston tennis club.” Trustees can spend the capital in one go, so it doesn’t lock away the capital perpetually.

Question 4

What exemptions do charitable trusts have from certain legal principles?

Answer 4

Charitable trusts are exempt from:
- The beneficiary principle, which requires identifiable beneficiaries.
- The rule against the inalienability of capital, which restricts long-term restrictions on property use.

Question 5

How are charitable trusts enforced and regulated, and what are the conditions for registration under the Charities Act 2011 (CA 2011)?

Answer 5

Charitable trusts are enforced by the Attorney General and regulated by the Charity Commission.

To be registered as a charity, the following conditions must be satisfied under the CA 2011:
(a) The trust must be for a charitable purpose.
(b) The trust must have sufficient public benefit.
(c) The trust must be exclusively charitable.

Question 6

What is meant by ‘charitable purposes’ under s 3(1) CA 2011?

Answer 6

Charitable purposes are defined under s 3(1) CA 2011 and include a range of activities that provide public benefit.
This includes:
Prevention or relief of poverty: Addressing the causes of poverty or providing relief from its effects.

Advancement of education: Supporting formal education and research.

Advancement of religion: Supporting religious worship and outreach.

Advancement of health or saving lives: Provision of healthcare services and rescue operations.

Advancement of citizenship or community development: Supporting civic responsibility and volunteering.

Advancement of the arts, culture, heritage, or science: Promoting art and scientific research.

Advancement of amateur sport: Supporting sports that promote physical or mental well-being.

Advancement of human rights, conflict resolution, religious or racial harmony, or equality and diversity: Promoting equality, diversity, and peaceful conflict resolution.

Advancement of environmental protection or improvement: Promoting sustainable development and conservation.

Relief of those in need due to youth, age, ill-health, disability, financial hardship, or other disadvantage: Providing care and support services for disadvantaged individuals.

Advancement of animal welfare: Preventing animal cruelty and promoting care for animals.

Promotion of the efficiency of the armed forces, police, fire, rescue services, and ambulance services: Supporting the public defence and security services.

Question 7

What are examples of charitable activities for the prevention or relief of poverty under s 3(1) CA 2011?

Answer 7

Poverty refers to “persons who have to go short in the ordinary [meaning] of that term” (Re Coulthurst). Charity Commission guidance suggests it includes financial hardship relief, such as trusts for the unemployed or those affected by famine.

Prevention or relief of poverty under s 3(1) can include:
- Grants of money or provision of essential items (furniture, food, heating appliances).
- Payment for services such as repairs, laundering, meals, or utilities.
- Provision of facilities for vocational training or technical skills to help individuals improve their living standards.

Question 8

What are examples of charitable purposes for the advancement of education under s 3(1) CA 2011?

Answer 8

Advancement of education includes:
- Supporting schools, colleges, universities, and community education programmes.
- Organisations such as parent-teacher associations, student unions, or those funding educational research.
- Pre-school and extracurricular programmes like summer schools and homework clubs.

Covers scholarships, educational facilities, museums, libraries, and useful research where results are published.

Question 9

How is the advancement of religion defined as a charitable purpose under s 3(1) CA 2011?

Answer 9

The advancement of religion includes:
- Belief in a god or supreme being and practices showing worship.
- Supporting places of worship, raising awareness of religious practices, and carrying out religious devotional acts.
- Missionary and outreach work are also included under this head.

Religion involves sustaining religious belief through funding services, maintaining places of worship, or distributing religious materials (Hodkin v Registrar General of Births, Deaths and Marriages).

Question 10

What constitutes the advancement of health or the saving of lives under s 3(1) CA 2011?

Answer 10

This charitable purpose includes:
- Preventing or relieving sickness, disease, or human suffering.
- Provision of medical treatment and comfort items for the sick or infirm (e.g., hospital radio).
- Funding medical research and providing rescue services like lifeboats and first aid.

Question 11

What is meant by the advancement of citizenship or community development under s 3(1) CA 2011?

Answer 11

This purpose involves:
- Promoting civic responsibility, volunteering, and supporting community infrastructure.
- Supporting urban and rural regeneration and developing social responsibility within communities.

Question 12

What are some examples of charitable activities for the advancement of the arts, culture, heritage, or science under s 3(1) CA 2011?

Answer 12

Advancement of arts, culture, heritage, or science includes:
- Supporting art galleries, theatres, museums, and local history projects.
- Preservation of historic sites or buildings and promoting scientific research through learned societies like the Royal College of Nursing.
- Expert evidence of artistic merit needed.

Question 13

What does the advancement of amateur sport entail as a charitable purpose under s 3(1) CA 2011?

Answer 13

This purpose includes:
- Supporting sports or games that promote physical or mental exertion, such as local sports clubs, multi-sports centres, and even bridge clubs for mental engagement.

Question 14

What charitable activities fall under the advancement of human rights, conflict resolution, or the promotion of racial harmony under s 3(1) CA 2011?

Answer 14

Advancement of human rights, conflict resolution, or promotion of equality and diversity includes:
- Promoting restorative justice, resolving international conflicts, eliminating discrimination, and fostering inter-faith understanding.

Question 15

What charitable purposes are included in the advancement of environmental protection or improvement under s 3(1) CA 2011?

Answer 15

This includes activities like:
- Conserving natural resources and promoting sustainable development (e.g., renewable energy research).
- Zoos, wildlife preservation, and efforts to protect the environment through recycling and biodiversity promotion.

Question 16

What activities are considered charitable under the relief of those in need due to youth, age, ill-health, disability, financial hardship, or other disadvantage under s 3(1) CA 2011?

Answer 16

Examples include:
- Providing accommodation and care services, such as care homes, drop-in centres for the elderly, or housing for those in need (e.g., almshouses).
- Supporting the upbringing of children or providing specialist equipment for those with disabilities.

Question 17

How does the advancement of animal welfare fit within charitable purposes under s 3(1) CA 2011?

Answer 17

Animal welfare includes:
- Preventing cruelty to animals, providing veterinary care, and supporting animal sanctuaries.
- Re-homing abandoned animals and promoting kindness to prevent suffering.

Question 18

What does promoting the efficiency of the armed forces, police, and rescue services involve under s 3(1) CA 2011?

Answer 18

This purpose includes:
Supporting the technical knowledge, fitness, and recruitment of service members.
Memorials for fallen colleagues and emergency rescue services.

Question 19

What constitutes a general charitable purpose for charitable purpose trusts?

Answer 19

This provision covers purposes which would have been recognised as charitable under the previous law, or purposes which are analogous to or within the spirit of the statutory heads of charity and earlier case law.

This principle of recognising charitable purposes by analogy is a long-standing principle of charity law. It ensures that the law on charitable purposes is flexible and can evolve to include additional purposes that were not specifically envisaged when the Act was drafted but nonetheless merit charitable status.

Question 20

What is the public benefit test for charitable purpose trusts?

Answer 20

Identifiable benefits: The benefit must be clear and relate to the charity’s purposes. Any detriment should be outweighed by the primary benefit (e.g., a school for pickpockets, while educational, would not be beneficial).

Benefit to the public or a sufficiently large section of the public: Trusts open to the general public, like museums, pass the test even if few take advantage. However, trusts benefiting restricted groups are assessed differently depending on the purpose.

Question 21

How is the public benefit test applied to trusts for the prevention or relief of poverty?

Answer 21

A trust for relieving poverty among named individuals is not charitable.

However, a trust for “my family” or “my relatives” is charitable, as the prevention of poverty is considered so important that the benefit, even if limited to a small number of individuals, is upheld.

Question 22

How is public benefit determined for religious charitable purposes?

Answer 22

Public benefit is present if:
The place of worship is open to all, even if only a few attend.

Even if the place of worship is not open to all, members of the congregation “live in this world and mix with their fellow citizens” (Neville Estates v Madden [1962] Ch 832).

Contemplative religious orders that are cloistered and have no contact with the outside world are not charitable (Gilmour v Coats [1949] AC 426).

Question 23

What are the restrictions on public benefit for educational and other charitable purposes?

Answer 23

Personal nexus test: A trust benefiting people linked by personal relationships, such as family or employment, is not charitable (e.g., Oppenheim v Tobacco Securities Trust Co Ltd [1951] AC 297).

Class within a class test: The class of people benefiting must be limited by rational or justifiable factors, such as geography, but arbitrary restrictions are not allowed (e.g., IRC v Baddeley [1955] AC 572).

Excluding the poor: Institutions charging fees must not exclude the poor. Fee-charging schools must ensure they provide scholarships or services to the wider public, with more assistance required as fees increase (Independent Schools Council v Charity Commission [2012] Ch 214).

Question 24

What does it mean for a trust to be exclusively charitable?

Answer 24

A trust must be exclusively charitable. This means it cannot:

Have a political purpose, such as campaigning for legal change (McGovern v Attorney General [1982] Ch 321).

Distribute profits to private individuals; any profits must be reinvested into the charitable purpose. Institutions like private hospitals or care homes run as commercial ventures cannot be charitable.

Question 25

What are political purposes, and how do they affect charitable status?

Answer 25

Political purposes include:
- Supporting a political party.
- Campaigning for legal or government policy changes (whether in the UK or abroad).

Charitable status is denied if a trust’s main purpose is political, as in McGovern v Attorney General [1982], where Amnesty International’s trust sought political change. However, charities may engage in political activities ancillary to their charitable purpose. E.g., Oxfam can campaign for government to make policy changes.

Question 26

What must happen to any profits made by a charity?

Answer 26

Profits must be ploughed back into the charitable purpose.

If an institution charges fees for its services, it can still retain charitable status, provided it does not exclude the poor.

However, if the institution is operated as a commercial venture, intending to make profits for individuals (e.g. private hospitals or most residential homes for the elderly), it cannot be charitable.

Question 27

What conditions must be met for a non-charitable purpose trust to overcome the beneficiary principle and the rule against inalienability of capital?

Answer 27

A non-charitable purpose trust can overcome these principles if:

• It is a Re Denley trust, or
• It is a trust of imperfect obligation.

Question 28

What defines a valid Re Denley trust, and how does the case of Re Denley’s Trust Deed illustrate this?

Answer 28

A valid Re Denley trust must meet the following criteria:
- The purpose of the trust must be sufficiently clear and provide a tangible benefit.
- The persons who benefit from the purpose must be ascertainable and conceptually certain.
- The trust must not offend the rule against inalienability of capital, meaning it must either be limited to 21 years or allow trustees to spend all capital on the purpose.

Example: In Re Denley’s Trust Deed [1969] 1 Ch 373, a plot of land was held for a sports and recreation ground for a specific company’s employees. The court allowed this purpose trust since it was clear and tangible, allowing the employees to enforce the trust.

Question 29

Can you give an example of a valid Re Denley trust and explain why it is valid?

Answer 29

An example of a valid Re Denley trust is:
“I give £500,000 on trust for building a gymnasium for use by employees of King International Limited.”

• The purpose is clear (building a gym).
• The beneficiaries (employees of King International Limited) are ascertainable and satisfy the given postulant test.
• The trust complies with the rule against inalienability of capital, as trustees can spend all capital on the gym.

Question 30

What are trusts of imperfect obligation, and what are their characteristics?

Answer 30

Trusts of imperfect obligation include:
- Trusts to care for specific animals (e.g., a beloved pet).
- Trusts to maintain graves and tombs.

The trust is valid, so if my trustees spend the money on looking after my dog Bouncer, no- one can complain; but
The trust is unenforceable, so if my trustees do not spend any money on my dog Bouncer, no- one can go to court to compel them to do so. The accepted view in these situations is
that the settlor (or, more likely, the residuary beneficiary of the deceased settlor’s estate) can go to court to claim the trust property for themselves.

These trusts must comply with the rule against inalienability of capital.

Example of a valid imperfect trust: ‘I give £20,000 to my Trustees to hold on trust to maintain my horse, Max, for as long as the law allows’

Question 31

What is the purpose of the cy-près doctrine in relation to charitable purpose trusts?

Answer 31

The cy-près doctrine applies when a charitable purpose trust fails. It ensures that:
- A resulting trust would defeat the intent of the settlor who dedicated property to a charitable purpose.
- Any surplus funds will be applied to another charitable purpose via a scheme established by the Charity Commission or court.
- This allows donors to know their property will still be used for charitable purposes, even if the specific purpose fails.

Question 32

Under what conditions can the original purpose of a charitable gift be altered according to section 62 of the Charities Act 2011?

Answer 32

The original purpose of a charitable gift can be altered on the following grounds:
- The original purpose has been fulfilled or cannot be carried out.
- The original purpose is still workable but does not utilise all available property, leading to surplus funds.
- Property from similar trusts is combined for more effective use.
- The original purpose refers to an area or class of persons no longer relevant or suitable.

Question 33

What happens to property given to charity when there is a failure of purpose, and how does this differ from a private trust?

Answer 33

Once property is given to charity, it is dedicated for all time; therefore, if there is a subsequent failure of purpose:
- The gift cannot revert to a resulting trust.
- Instead, it will be applied cy-près to a similar charitable purpose.

In contrast, where a private trust fails, there is typically a resulting trust back to the settlor.

Question 34

What must be established for cy-près application when there is an initial failure to apply property to a specific charitable purpose?

Answer 34

For cy-près application after an initial failure, the settlor must have shown a general charitable intention. The court must determine whether:
- There was a specific intention to benefit a particular object, or
- There was an intention to further a general mode of charity, despite references to a specific object.

Only in the latter case can property be applied cy-près upon the failure of the initial purpose.

Example: In Biscoe v Jackson, the intended purpose was to provide a soup kitchen and cottage hospital for the parish of Shoreditch. When suitable land could not be found, the court determined:
There was a general charitable intention to benefit the sick and poor of the parish. The impossibility pertained only to the form of the gift, allowing the general charitable purpose to be executed cy-près.

Question 35

What was the outcome in Re Good’s Will Trusts, and why was there no application of the cy-près doctrine?

Answer 35

In Re Good’s Will Trusts, a trust to provide rest homes in Hull was deemed too specific, as the testator had created detailed management plans that conflicted with a general charitable intention. Thus:
- The court found there could be no cy-près application of the funds since they were insufficient for the intended specific purpose.
- The lack of general charitable intention meant the purpose could not be altered under the cy-près doctrine.