Charitable and Non-Charitable Purpose Trusts

Question 1

What is a purpose trust

Answer 1

• A trust which instead of being for the benefit of individuals, it is created for the advancement of a certain cause (eg I give 400k on trust to my trustees to promote good citizenship).

Question 2

True or False: Certainty of intention and certainty of subject matter have different meanings when relating to a purpose trust.

Answer 2

False. These two requirements are the same.

Question 3

Explain the certainty of objects requirement for purpose trusts.

Answer 3

The object will be the purpose and it must therefore be clear what purpose the trustees are to achieve with the trust property.

Note if the purpose is a charitable purpose, this can be more vague and clarity commission determine what the trustees are to do with the property.

Question 4

Explain the rule of perpetuities in relation to purpose trusts

Answer 4

If purpose trust is non-charitable, it will be void if it locks capital away for period of more than 21 years.

Question 5

Give the two ways in which a purpose trust (non-charitable) will not offend the rule of perpetuities.

Answer 5

1) trust states it is to last for no more than 21 years;
2) trustees may spend all trust capital on purpose and thereby end trust at any time.

Question 5

Give an example of a non-charitable purpose trust which will offend the rule of perpetuities.

Answer 5

• I give £40,000 to my Trustees so that they may use the income to maintain the
  changing rooms at Beeston tennis club.
• This is because the above does not specify when the trust will end so the capital could be locked away to maintain the changing rooms indefinitely.

Question 6

Give an example of a non-charitable purpose trust which will not offend the rule of perpetuities.

Answer 6

• I give £40,000 to my Trustees so that they may build changing rooms at Beeston
  tennis club.
• This does not offend rule of perpetuities as the trustees can spend the capital in one to to build the changing rooms and therefore there is no suggestion of it lasting in perpetuity.

Question 7

Are charitable purpose trusts subject to the rules of perpetuities and the beneficiary principle?

Answer 7

No.

Question 8

List the requirements a trust needs to satisfy to be validly charitable (in accordance with the Charities Act 2011).

Answer 8

1) Trust must be for a charitable purpose;
2) Trust must have a sufficient public benefit; and
3) Trust must be exclusively charitable.

Question 9

What are the three most common charitable purposes a trust will be designated for (under the Charities Act 2011)?

Answer 9

1) Prevention or relief from poverty;
2) Advancement of education;
3) Advancement of a religion.

Question 10

Explain the charitable purpose of prevention or relief from poverty.

Answer 10

• Doesn’t necessarily mean destitution;
• Guidance from charity commission states it is likely to be charitable to relieve financial hardship of anyone not having resources to provide themselves with normal things in life out people take for granted.
• Trusts for this purpose could therefore help unemployed, homeless, or seek to build homes for asylum seekers (for example).

Question 11

Explain the requirement that a charitable trust must have a sufficient public benefit.

Answer 11

1) Trust purpose must have an identifiable benefit or benefits:

• benefit of the trust must be clear and relate too purposes of charity;
• potential detriments have to be outweighed by clear primary benefit;
• ie school for pickpockets might be educational but unlikely to be of sufficient benefit.

2) The benefit must be to the public:

• No problem where benefits of trust are offered to whole public (ie marinating museum open to all);
• More complex when for a restricted group.

Question 11

How is the public benefit requirement treated in relation to charitable purpose trusts for specific religions/ religious causes?

Answer 11

A public benefit for religious trusts will be found if:
1) place of worship is open to all;
2) if not open to all, members of the relevant congregation live in this world and mix with their fellow citizens.

Question 12

List the requirements an educational purpose trust (pr any other charitable purpose not relating to a religion) must satisfy in order to meet the public benefit requirement.

Answer 12

1) Personal nexus test;
2) The class within a class test;
3) charitable purpose trusts must not exclude the poor.

Question 13

Explain the personal nexus test.

Answer 13

• The people who are to benefit must not be linked by a personal relationship to either an individual or company.
• Eg ‘I give £ 250,000 to my Trustees for the education of the children of employees of Red Anchor Limited’. This does not satisfy the personal nexus test as the people to benefit have to be children of certain individuals employed by the certain company. In effect the benefit has to be wider to constitute a public benefit.

Question 13

Explain the class within a class test.

Answer 13

• Class of people to benefit can be limited, so long as the limits are legitimate proportional rational and justifiable.
• Geographical restrictions are a common example of something that would be allowed.
• A trust for the benefit of people resident in West Ham who are likely to become methodists would however NOT fulfil this requirement (as the restriction of being a methodist is arbitrary).
• Effectively the more restrictions imposed, the greater care needs to be taken to ensure the limitations are proportionate.

Question 13

Explain the requirement that charitable purpose trusts must not exclude the poor.

Answer 13

this relates to charitable organisations.

The organisation the trust is for (if there is one) must ensure any money brought in is paid back into the charity. If the services are likely only met by rich people this will be deemed as excluding the poor.

Question 14

Explain the requirements for a trust to be deemed exclusively charitable.

Answer 14

1) Trust must not have a political purpose;
2) If charitable organisation charges fees, profits from those fees must be put straight back into trust rather than paid to private individuals.

Question 15

True or False: A charitable trust can have both non-charitable and charitable purposes.

Answer 15

False. To be a charitable trust, it cannot have any non-charitable purpose.

Question 15

Explain the requirement that a charitable trust must not have a political purpose

Answer 15

This would include purposes:
1) To support a political party;
2) Campaigning for a change in the law (either inside or outside the UK) or change in government policy/ decisions.

Question 16

Will a body with a mixture of charitable and political purposes be given charitable status?

Answer 16

No.

Question 17

Explain whether the following trust will be a charitable purpose trust and why:

‘I give £50,000 to my Trustees to use the income to relieve poverty among my
relatives’.

Answer 17

• This is a charitable purpose trust for the following reasons:

1) The purpose is to relieve property;
2) It exists for the public benefit as a class of people to benefit has been identified (even ‘my relatives’ is sufficient although listing individuals would not be);
3) It is exclusively charitable.

Question 18

Explain whether the following trust will be a charitable purpose trust and why:

‘I give £400,000 to my Trustees to use the income to provide educational scholarships
for my children’.

Answer 18

This is not a charitable purpose trust for the following reasons:
1) It does advance education (as set out in charities act);
2) It is exclusively charitable; however
3) It does not exist for the public benefit as although the scholarships is an identifiable benefi, ‘my children’ is not a sufficient section of the public as the personal nexus test is not met.

Question 19

Summarise the specific requirements for an education trust.

Answer 19

1) Must be for advancement of education;
2) Must be more than numerically negligible and not falling foul of:
a) personal nexus test;
b) arbitrary restrictions;
c) excluding the poor.
3) Must not be for a political purpose;
4) The profits must go back to the charitable purpose.

Question 20

Summarise specific requirements for poverty trusts.

Answer 20

1) Must be for prevention/ relief of poverty;
2) Must be for the benefit of a class of individuals (not named individuals);
3) Political purpose of the trust must not exist, or if it does it must be ancillary.

Question 21

Give the two situations where a non-charitable purpose trust can be valid and overcome the beneficiary principle ad rules of perpetuity.

Answer 21

1) It is a Re Denley trust;
2) It is a trust of imperfect obligation.

Question 22

Summarise specific requirements of religious trusts.

Answer 22

1) Must be for the advancement of a religion;
2) Worship place must be open to the public, or members of the religion must mix with the public (ie cults like scientology will not suffice as they exclude themselves from public);
3) There cannot be any political purpose.

Question 23

Give the requirements a non-charitable purpose trust must meet to be a Re Denley trust.

Answer 23

1) Purpose of the trust must be sufficiently cleat and give rise to sufficiently tangible benefit;
2) People standing to benefit from carrying out of purpose of the trust must be ascertainable. To work out who can enforce purpose trust, description of those who are to benefit in effect must be conceptually certain;
3) rule of perpetuity must be followed (ie either a maximum of 21 years or trustees must be able to spend all trust capital on purpose to bring the trust to an end)

Question 24

Explain trusts of imperfect obligation.

Answer 24

• Either:
  1) trusts to care for specific animals (such as pets); or
  2) trusts to maintain graves and tombs.
• However as there is no-one who can enforce them the trusts are valid but unenforceable.
• These trusts must not offend the perpetuities rule Ie not for more than 21 years or phrased as ‘for as long as the law allows’).