Ch9 - Non Charitable Purpose Trusts Flashcards
● Purpose Trusts:
not for specific individuals but for particular purposes. The trusts can be for charitable purposes and non charitable purposes. Require the same considerations for creation of exprss trusts, except instead of certainty of objects, it is certainty of purposes
● Charitable Purpose:
trust for a purpose that falls within the legally accepted heads of charity: relief of poverty, advancement of religion, advancement of education or other purposes beneficial to the community. Certainty of objects requires that there be “an exclusive general charitable intent.” (ie certainty of charitable intent)
● Non-Charitable Purpose:
does not fall within the accepted heads but can include other things. The purpose must be sufficiently certain that “one can assess whether any given act of the trustee is consistent with the purpose.” (eg freedom of press, promo of world peace, care of animals, gravesite erection)
The General Rule Against Validity of Non-Charitable Purpose Trusts
Non validity: General rule is non charitable purpose trusts arent valid
Articulate various reasons advanced for the general rule of the non-validity of non-charitable purpose trusts and the arguments as to what is the primary reason for the rule.
Non validity: General rule is non charitable purpose trusts arent valid. Why?
- Beneficiary Principle: there needs to be someone in whose favour the court can decree performance (Morice v Bishop Durham). Without a beneficiary, there is no one to enforce the trust obligation and no one in whose favour enforcement can be ordered and thus no trust obligation. This is the primary reason for the rule.
- Conceptual Uncertainty: too uncertain to be enforced. This is not a general rule since there is a possibility for purpose trusts to be reasonably certain.
- Perpetual Duration: and thus violate the rule against perpetuities. However, it is possible to construct a trust for a purpose that complies with the rule against perpetuities, thus general rule maybe not based here.
- Excessive Delegation of Testamentary Power: The testator could simply transfer funds to a trustee for a purpose leaving the trustee a very broad discretion in carrying out the purpose (risking excessive delegation of testamentary powers contrary to wills legislation), but testamentary trusts provide discretion and are often upheld thus this cannot be a major reason for the non-validity. Futher. This explanation for non validity of non charitable purpose trusts doesnt explain why inter vivos non charitable purpose trusts have been held not to be valid trusts.
Identify the exceptions to the rule that non charitable purpose trusts arent valid
(ii) Explain why those exceptions may have been made; and
● Morice v Bishop of Durham: General rule that non-charitable purpose trusts are not valid. Exceptions were made to the general rule in 19th century:
○ (i) erection of a monument at a gravesite;
○ (ii) maintenance of a gravesite; and
○ (iii) care of specified animals.
● Original 3 exceptions were said to be historical anomalies that were 19th century concessions to upper class english social life. “Concessions to human weakness or sentiment”.
(iii) Discuss whether the implication of those exceptions (to non charitable purpose trusts rule) is that there is no general rule.
● The question was whether more exceptions exist and whether that means there is no general rule
● Re Astor - indicated list of exceptions should be closed
○ Noted concern re large funds in hands of trustees for purposes that neither courts nor states could enforce
○ Noted that exceptions had been found where court had an indirect means of enforcing the trusts
○ Argued that exceptions meant there is no general rule
○ HELD: There is a general rule of non validity and there are some limited exceptions.
■ Referred to re thompson as perhaps a more general exception…
● Re Thompson was another possible more general exception - purpose reasonably certain and residuary legatee cound enforce trust if funds were misapplied…… anomality
○ Possible that exception exists where remainder person after purpose trust will have incentive to enforce purpose trust → criticized as being negative enforcement. The person who is entitled to the remainder will have no incentive to see that the trustee actually carries out the trust for the particular purpose.
Skill Objective: Identify and apply means by which the general rule has been avoided under the common law.
● courts have been able to construe the language to enforce the non-charitable purpose trusts as a trusts for persons.
Re Denley’s Trusts
Involved a trust expressed as a trust for purposes that the court construed as a trust for persons. The trust was made for the benefits of the employees.
Where the trust, though expressed as a purpose, is directly or indirectly for the benefit of an individual or individuals, it seems to me that it is in general outside the mischief of the beneficiary principle.
Stands for the proposition that a purpose trust is legally valid as long as there is some person who can be given standing to enforce the trust.
if all case says is that a trust expressed as purpose is valid if one can identify one or more persons with an enforceable equitable interest then it says nothing new since where there is an equitable interest in a person and that person can enforce it (i.e., as a beneficiary), it is just a trust for persons
BUT might the case say something broader – e.g., that if there is someone who can be given standing to enforce the trust, even if that person does not have an identifiable equitable interest, the trust, although for a purpose, is valid
in Canada we may be taking the latter approach to Re Denley
Keewatin Tribal Council Inc v City of Thompson
Executed a trust indenture for property making itself the trustee of the property in the city of Thompson for various first Nationa bands. However, FN bands are not legal persons.
The court held the trust to be a valid non-charitable purpose trust on the basis that the indirect beneficiaries were the individual members of the bands. Any number of individuals might be given standing to enforce the trust.
Re Denley ratio is upheld here.
In considering this case- discuss mcphail and dulton. Personhood. If relatives can be ascertained then why cant these FN highschool students? Can we fit it under narrow interp of re denley?
Peace Hills Trust Co v Canada Deposit Insurance Corp
“having particular regard to the approach taken in Keewatin … a non-charitable purpose trust may be created in Canada and would be recognized by the courts of this country”
The courts held here that it was a purpose trust, that the funds were held for the purpose of purchasing the land. Thus what this case show was that the position is developing in Canada and there is no general rule against the validity of non-charitable purpose trusts
● Cases suggest position is developing in cda and there is no general rule against validity of non charitable purpose trusts
○ May be valid as long as someone can enforce them
○ Question is who can be given standing to enforce trust?
Knowledge Objective: Describe the statutory reform in “wait and see” perpetuity legislation concerning purpose trusts.
● Perpetuities statutes in Ont, AB, BC deal with the problem of the non-enforceability of non-charitable purpose trusts by treating them as powers and limiting the power to a period of 21 years. (before Keewatin and Peace Hills cases)
● BC Perpetuities Act S. 24 :(1) a trust for a specific non charitable purpose that creates no enforceable equitable interest in a specific person must be construed as a power to appoint the income or capital. The trust is valid so long as and to the extent that it is exercised either by the original trustee or the successor within a period of 21 years.
○ (2)The person who would have been entitled to the property comprised in the trust, fi the trust had determined at the expiration of the 21 year period, is entitled to that unexpended income or capital.
→ legislation seems to follow Re Thompson case referred to in Re Astor. Gives person entitled afterwards an incentive to ensure not used for anything other than intended purpose. Does not however give incentive to force trustee to use for intended purpose. Just a power so trustee has discretion as to whether to use it for intended purpose - trustee has power as a fiduciary
Question of how to interpret when s24 applies
Four different interpretations as to when s. 24 might apply:
- The section only applies where there is a perpetuity problem
- Only applies where there is a problem with the enforcement of the obligation, where there is no person who could be given standing to enforce the trust
- Creates no enforceable equitable obligation in a specific person. this would mean that the provision would apply to all non-charitable purpose trusts that cannot be interpreted as tradition for person trusts (except for those established exceptions ie gravesite maintenance + erection, care of specified animals)
- Applies to all non-charitable purpose trusts whether there is a perpetuity problem or not and whether or not they are recognized as anomalies to the general non-validity of non-charitable purpose trusts.
→ which interp applies isnt clear.
Question of what specific non charitable purpose is:
● “specific no-charitable purpose” interpretation issue: the court must know whether any given use of the funds is consistent with the purpose or not in order to determine whether the trustee has acted in accordance with the power to expend funds for the purpose intended (certainty of objects). The court must be able to determine whether any given use of the property is within the power or not in order to determine whether the power has been validly exercised.
● Legislation modifying rule of invalidity of non charitable purpose trusts referes to “a specific non charitable purpose trust”
Cases On These Questions:
Re Russell
● Gift to society that was unincorp’d thus not a person. Q whether it could be gift for members. Court said no since expressed as gift for purposes of society. Upheld as charitable purpose trust for religion and education. But use of word “and” literary purposes. Since literary purposes werent charitable and had to be engaged with others, there was a problem. Applied s47 of law and equity act to sever literary to confine to charitable purpose.
● application of provision considered even though no perpetuity problem – suggests Stevenson J. did not think interpretation (i) was correct
● Stevenson J. also says, “the legislation appears to me to equate ‘specific purpose trust’ with other recognized anomalous purpose trusts which have been permitted to operate as powers.” – does this suggest interpretation (iv) above?
● “specific non-charitable purpose” – equates to test for certainty of objects of non-charitable purpose trust by analogy to McPhail v. Doulton, i.e., one must be able to say whether any given use would qualify as a proper use of the trust funds
Other Proposals for Reform:
● BC Law Reform Commission 1991
○ recommended court have general supervisory power to order enforcement at request of settlor, settlor’s personal representative, Attorney General, or the trustee
● Manitoba 1992
○ Commission recommends that settlor appoint an enforcer or delegate to enforce a purpose trust (but who enforces the enforcer’s obligation?)
● Uniform Law Conference 2012
○ Section 74 of that proposed uniform trustee act would treat some types of non-charitable purpose trusts as valid trusts
○ would allow a court to make an order it considers appropriate to enforce a non-charitable purpose trust or to vary the powers of the trustee on application by AG, a person appointed by settlor to enforce trust, the settlor, the personal rep of the settlor, the trustee, or a person appearing in court to have a sufficient interest in matter
○ Similar to wait and see,w ould have to not create an equitable interest in any person and be sufficiently certain to allow trust to be carried out
○ “Purposes for which a society may be incorporated under the particular jursidictions legislation respecting societies” included
■ Ex patriotic, religious, philanthropic, charitable, educational, agricultural, scientific, literary, historical, artistic, social, professional, fraternal, sporting or athletic
- Explain the problem with gifts to unincorporated associations to be held on trust.
The Problem of Unincorporated Associations
● the problem of gifts to an unincorporated association is a complex one that creates three issues
○ (i) the problem with the validity of purpose trusts ie. who will enforce them
○ (ii) the perpetuity problem; and
○ (iii) the certainty of purposes of a non-charitable purpose trust.
■ Subject to further development of the Keewatin and Peace Hills approach, the relatively limited range of accepted non-charitable purpose trusts means the last issue is only likely to arise in the context of the application of the Perpetuity Act provision allowing a non-charitable purpose trust to be treated as a power
● Gift to no one - Unincorporated associations are not legal persons and therefore the law sees it as a gift to no one.
○ unincorporated association operates by agreement among its members to operate in a way they have agreed upon – i.e., it is a contract among the members
Identify ways in which a gift in trust to an unincorporated association may be saved as a valid trust.
A. Gift to Members Allowing Members to Take Their Share:
● The gift could be saved if it could be interpreted as a gift directly to the members of the association themselves as joint tenants thereby allowing the members to divide up the gift between them.
● This would only work if the members could sever their shares and take the property to themselves.
● Problems:
○ Unincorpd association memberships change ocer time – so if gift is testamentary, not always clear who it was to
○ It is rarely the case that a gift to an unincorporated association was intended to be divide up between the members of the association. Usually for a purpose.
B. Gift to Members for Purposes of Association
● (i) Can be saved if the members can wind up the association and distribute the property held for the purposes of the association among the members
○ If they choose not to wind up the association then they have apparently agreed to hold the property according to the contract amongst themselves and to have the property used for the purposes of the association.
○ It is not contrary to rule against remoteness of vesting since the property is already vested in the members (ie it is their property at time of gift)
○ Not non charitable purpose trust bc it is a gift to members. Thus not a purpose trust and no question of certainty of purpose
● (ii) if the members cannot wind up the association/distribute property among members and the association can go on indefinitely then it violates the rule of remoteness of vesting.
○ Also trust is a non charitable purpose trust if purposes of association arent charitable
● (iii)IF Purposes are exclusively charitable - Treated as gift to members but the gift cannot be distributed by the members, the gift will nonetheless be valid if the purpose is exclusively charitable. It will not create a perpetuity problem since the perpetuity rules do not apply to property held in trust for charitable purposes.
C. Gift to Unincorporated Association for Specific Purpose (no)
● Where a gift is made for a particular purpose or purposes other than the that of the association, it cannot be treated as a gift to the members for the purpose of the association. It may be construed as a trust for persons or it is valid where the purpose is a charitable purpose.
○ If not exclusively charitable purpose can be saved by s47 of law and equity act
D. A gift may be saved under s. 24 of the BC Perpetuities Act (subject to q about when exactly act applies)
● Saved as valid trust but operates as a power for 21 yrs .
● Equivalent legislation in AB and Ont
E. Policy: strong desire to enforce gifts to satisfy the intent of the donor or, while not necessarily charitable, it is often set up to do things that might generally be considered beneficial to the community
Re Lipsnski’s Will Trusts
● bequest to Unincorporated Association “in memory of my late wife to be used solely in the work of constructing the new buildings for the Association and/or improvements to the said buildings”
● association had been established to provide “social, cultural and sporting activities for Jewish youth in Hull, or for such Jewish youth in Hull as become members of the association”
● association constitution calls for assets to go to setting up any other Jewish youth organization with similar aims or objects BUT constitution can be changed by 3/4rs vote of the members
● claim by statutory next of kin that trust not valid so property falls back to estate
● Held:
● purposes of association not charitable purposes
● as to validity of gift analyzes in the context of quote from Tudor on charities (based on earlier cases)
● Treating the gift as creating a trust for persons - no reason why a gift that specifies a purpose that is within the powers of the association and of which members of that association are bens should fail since the bens are either able to enforce the trust or terminate the trust for their own benefit
○ next of kin had argued that building was to be a youth centre that all Jewish youth in Hull could use so not just for the benefit of members
○ Oliver J. says youth centre project had been abandoned at time testator executed the will
● then question of whether this was a gift for a specific purpose of a new building
○ Oliver J. says words of settlor about use “solely” for building was just a non-binding direction to the members to use it for a building – [implying gift to members that they could take to themselves by amending the constitution re dissolution and dissolving the association, but for the time being agreeing (contract) to use for the association purposes]
● concludes by saying it doesn’t matter whether one treats the gift as a purpose trust, an absolute gift with a superadded direction (i.e., a power) or as a gift where the trustees and the bens are the same persons (i.e., a trust for persons), they all lead to the same conclusion (the gift is a valid gift)
● confusing – hard to figure out just what the reason was for upholding the gift – but gift to do good things although not technically charitable – upholding fits intention of testator – clearly did not want it to go on an intestacy – persons (members) who might enforce
Conclusion on unincorp’d associations
Conclusion
● usually the association has been incorporated so it is a person and can receive a gift - but need to check this
○ Get name accurate of association
● also watch out for gift, even to an incorporated entity or individual, for a specific purpose – may be a non-charitable purpose (that may be a valid trust but operate just as a power per wait and see perpetuity act provision) or for an uncertain purpose (making it invalid)
○ these cannot be treated as gifts to the members and would involve a holding of the property in trust by the members of an unincorporated association (or even by an incorporated entity) and the question then will be whether the gift is valid either as a charitable purpose trust, as a valid non-charitable purpose trust, or is an invalid non-charitable purpose trust.
● if not incorporated then suggest options:
(i) maybe it can be suggested that the association become incorporated;
(ii) direct gift to charitable purposes;
(iii) check for wind-up provision and have gift made for general purposes of association, perhaps with added direction for specific purpose (but make it very clear it is just an added direction – i.e., suggestion, wish, hope)
