Ch 04 - Charitable and Non-Charitable Purpose Trusts Flashcards
What is a purpose trust?
A purpose trust is set up to achieve a specific purpose or advance a cause, rather than to benefit individual beneficiaries.
What issue does the beneficiary principle pose for purpose trusts?
The beneficiary principle requires that a trust have beneficiaries who can go to court to enforce the trustee’s duties. Purpose trusts may lack such individuals, as the objective itself cannot go to court.
How do charitable trusts overcome the beneficiary principle?
Charitable trusts are exempt from the beneficiary principle because they are enforced by the Attorney General. They must meet a three-step test:
1. Charitable purpose
2. Sufficient public benefit
3. Exclusively charitable
What are the key considerations for a trust to be charitable?
To be charitable, a trust must:
- Serve a charitable purpose listed in the Charities Act 2011.
- Provide sufficient public benefit, benefiting the public rather than specific linked groups.
- Be exclusively charitable, meaning it cannot have political purposes.
What is the ‘public benefit’ test for charitable trusts?
A charitable trust must benefit a sufficient number of people, not linked by family or employment (the ‘personal nexus test’). It must also not exclude the poor, such as fee-paying schools offering scholarships.
What if a trust is not charitable?
A non-charitable trust may still be valid if it is a resulting trust or an imperfect obligation trust.
- Resulting trust: Identifies specific beneficiaries who can enforce the trust.
- Imperfect obligation trust: A trust with no identifiable beneficiary (e.g., for the care of a pet) can be upheld by the courts.
What is the rule against perpetuities in purpose trusts?
Purpose trusts can only last for 21 years to prevent capital from being locked away indefinitely. Charitable trusts are exempt from this rule.
What are the conditions for a non-charitable purpose trust to be valid?
A non-charitable purpose trust must either be limited to 21 years or allow trustees to spend all trust capital at any time, thus bringing the trust to an end. An example is the Re Astor trust, which was valid because the purpose was clear, the beneficiaries were ascertainable, and it was time-limited to 21 years.
