Charitable and Non-Charitable Purpose Trusts

Question 1

What are the differences between trusts for individuals and purpose trusts, and how can they be identified?

Answer 1

1. Trusts for Individuals:
   * Definition: Created to benefit specific individuals or groups of individuals.

• Features:
• Beneficiaries have enforceable proprietary rights.
• Trustees must distribute trust property to the designated individuals.
• Beneficiaries can sue trustees for mismanagement.
• Example:
• “£400,000 to trustees for Bath residents as my trustees see fit.”
• Trustees distribute funds to individuals within the designated class.

2. Purpose Trusts:
   * Definition: Established to achieve a specific purpose or advance a cause rather than directly benefiting individuals.

• Features:
• No identifiable beneficiaries.
• Trustees must use the property to achieve the purpose, not distribute it.
• Examples:
• “£400,000 to promote good citizenship.”
• “£50,000 to build a community hall.”

Key Difference:
* Trusts for individuals have beneficiaries with enforceable rights, while purpose trusts focus on achieving objectives and often lack enforcement mechanisms unless they are charitable.

Question 2

What are the key validity issues faced by purpose trusts?

Answer 2

1. The Beneficiary Principle:
   * Explanation: Trusts must have identifiable beneficiaries who can enforce the trust in court.

• Issue: Purpose trusts often lack beneficiaries, making them void unless they qualify as exceptions.
• Case Law:
• Re Shaw (1957): A trust to develop a 40-letter alphabet failed due to the absence of identifiable beneficiaries.

2. Rule Against Perpetuities (Inalienability of Capital):

• Explanation: Property must not be locked away indefinitely.
• Issue: Non-charitable purpose trusts are void if they fail to comply with the rule against inalienability of capital (21-year limit).
• Conditions for Validity:
• The trust must explicitly limit its duration to 21 years.
• Trustees must have the power to spend all capital to fulfill the purpose.
• Examples:
• Invalid: “£50,000 to maintain club facilities forever.”
• Valid: “£50,000 to build club facilities” (capital can be spent immediately).

Question 3

How do charitable trusts avoid the validity issues faced by purpose trusts?

Answer 3

1. Exemption From the Beneficiary Principle:

• Charitable trusts are enforced by the Attorney General or Charity Commission.
• Example: A trust to build homes for the homeless is valid even without named beneficiaries.

2. Exemption From the Rule Against Perpetuities:

• Charitable trusts can exist in perpetuity.
• Example: A trust to maintain a museum indefinitely is valid.

3. Conditions Under the Charities Act 2011:

• Charitable Purpose: Must align with one of the purposes listed in s.3(1) of the Act.
• Public Benefit: Must provide an identifiable benefit to a sufficiently large section of the public.
• Exclusivity: The trust must solely pursue charitable purposes.

Key Point: Charitable trusts enjoy special legal exemptions that allow them to bypass typical validity issues.

Question 4

What are the three conditions for a valid charitable trust under the Charities Act 2011?

Answer 4

1. Charitable Purpose (s.3(1)):
   * Must promote at least one of the purposes listed in the Act.

• Examples:
• Relief of Poverty: Helping individuals without basic resources (Re Coulthurst).
• Advancement of Education: Building schools, providing scholarships, or funding research.
• Advancement of Religion: Supporting religious practices or maintaining places of worship.

2. Public Benefit:
   * Identifiable Benefit: The trust must provide a tangible benefit.

• Public Access: The benefit must reach a sufficiently large section of the public.
• Examples:
• Valid: A trust to maintain a public library.
• Invalid: A trust for scholarships limited to the settlor’s children (Oppenheim).

3. Exclusivity:
   * The trust must not mix charitable and non-charitable objectives.

• Example: A trust funding scholarships and political campaigns is invalid.

Key note: Charities can engage in political actives that are incidental to their main charitable purpose- ie are a means of chaining the main charitable purpose.

Question 5

What is the beneficiary principle, and how does it apply to purpose trusts?

Answer 5

1. Definition: Trusts must benefit identifiable individuals who can enforce the trust through the courts.
2. Application to Purpose Trusts:
   * Purpose trusts generally fail because they lack beneficiaries with enforceable rights.
3. Case Example:
   * Re Shaw (1957): A trust to develop a new alphabet was void as it did not benefit individuals.
4. Charitable Trusts Exception:
   * Charitable trusts are exempt from this principle because the Attorney General or Charity Commission enforces them.

Key Point: Purpose trusts often fail unless they fall into specific exceptions or qualify as charitable trusts.

Question 6

How does the rule against perpetuities affect non-charitable purpose trusts?

Answer 6

1. Definition: Non-charitable purpose trusts must not lock away property for more than 21 years unless:

• The trust explicitly ends within 21 years.
• Trustees have the power to spend all capital.

2. Examples:
   * Invalid: “£50,000 to maintain tennis courts forever.” (Capital locked indefinitely).

• Valid: “£50,000 to build tennis courts.” (Capital can be spent immediately).

3. Charitable Trusts Exemption:
   * Charitable trusts can last indefinitely.
   * Example: A trust to maintain a church is valid in perpetuity.

Question 7

What is the public benefit requirement for charitable trusts?

Answer 7

1. Identifiable Benefit:
   * The benefit must be clear and relate directly to the trust’s purpose.

• Example: A trust funding a school benefits the public; a school for pickpockets does not.

2. Benefit to the Public:
   * The trust must benefit a sufficiently large section of the public.
   * Examples:
   * Valid: A trust for scholarships for impoverished students.

• Invalid: A trust limited to the settlor’s family (Oppenheim).

3. Exceptions for Poverty Relief:
   * Even narrowly defined groups, such as “my family,” may qualify due to the importance of poverty relief.

Question 8

What are the exceptions for non-charitable purpose trusts that remain valid?

Answer 8

1. Limited Duration:
   * The trust must end within 21 years or allow trustees to spend all capital.
2. Recognized Exceptions:
   * Trusts for specific purposes like maintaining graves or caring for animals.

• Example: A trust to maintain a pet cemetery may be valid even though it lacks beneficiaries.

Key Point: These exceptions are narrow and must comply with strict legal requirements.

Question 9

Why must charitable trusts be exclusively charitable?

Answer 9

1. No Mixed Purposes:
   * Charitable trusts cannot combine charitable and non-charitable objectives.
2. Prohibition of Political Purposes:
   * Trusts cannot aim to change laws or influence government policies.
   * Case Example:
   * McGovern v Attorney General (1982): Amnesty International’s trust was invalid as it sought law reform.
3. Profit Use:
   * Profits from charitable activities must be reinvested into the trust, not distributed to individuals.

Key Point: A charitable trust must focus exclusively on charitable purposes to retain its legal status.

Question 10

What is the “personal nexus test,” and how does it apply to charitable trusts advancing education??

Answer 10

1. Definition:
   * A charitable trust advancing education must benefit individuals unconnected by personal ties (e.g., family or employment).
2. Case Law Examples:
   * Oppenheim v Tobacco Securities [1951]: A trust funding education for employees’ children failed because the beneficiaries were linked by their parents’ employment.

• Re Compton [1945]: A trust for the education of specific family members failed the personal nexus test.

3. Key Rule: The personal connection between beneficiaries undermines the trust’s ability to serve the public.

Question 11

What is the “class within a class” test, and why is it significant for public benefit?

Answer 11

This along with the personal next test are used in the advancement of education and other charitable purposes:

Restrictions on beneficiaries must be rational, justifiable, and proportionate to the charitable purpose. Arbitrary or excessive restrictions are not allowed.

Examples:
*	Valid: “Housing for elderly residents of Lewisham,” as geographical limits are reasonable for tangible benefits like housing.

*	Invalid: IRC v Baddeley (1955): A trust for “sports for Methodists in West Ham” was deemed arbitrary because the second restriction (religion) was unjustified.

Principle: The more restrictions imposed, the greater the scrutiny required to ensure the public benefit.

Question 12

How is public benefit assessed for charitable trusts advancing religion?

Answer 12

1. Criteria for Public Benefit:
   
   • Access to worship must be public or benefit a large segment of the population.
   • Congregational interaction with the wider community is critical.
     2. Case Law Examples:
   • Valid: Neville Estates v Madden [1962]: A trust for religious worship was valid where the congregation interacted with the public.
   • Invalid: Gilmour v Coats [1949]: A cloistered religious order with no public interaction failed the public benefit test.
     3. Principle: Public interaction and access are essential to meet the public benefit requirement.

Question 13

How does charging fees impact the public benefit requirement for charitable trusts?

Answer 13

1. Principle:
   * Fee-charging charitable institutions (e.g., schools, hospitals) must ensure that they do not exclude the poor.
2. Ways to Include the Poor:
   * Scholarships and bursaries.
   * Sharing resources with local communities.
3. Case Law Example:
   
   • Independent Schools Council v Charity Commission [2012]: Fee-charging schools must demonstrate significant efforts to include the poor.
4. Key Rule: High fees must be balanced by efforts to provide broader public access. Any profits must be ploughed back into the charitable purpose.

Question 14

What are valid non-charitable purpose trusts, and why are they exceptions?

Answer 14

1. Definition:
   * Non-charitable purpose trusts are trusts that aim to achieve a purpose rather than directly benefiting individuals.
   * Ordinarily, these trusts fail due to:
   * Beneficiary Principle: No human beneficiaries to enforce the trust.
   * Rule Against Inalienability of Capital: Property cannot be tied up indefinitely.
2. Exceptions:
   * Re Denley Trusts: Where identifiable individuals benefit from the purpose and can enforce the trust.

• Trusts of Imperfect Obligation: Valid for specific purposes (e.g., caring for pets or maintaining graves), though unenforceable.

3. Key Justification for Exceptions:
   * These trusts are allowed in specific circumstances to address practical or moral needs (e.g., human sentiment for pets or graves).

Key Case Examples:
* Re Denley’s Trust Deed [1969]: A trust for a sports ground was valid as it benefited identifiable employees.

• Re Hooper [1932]: A trust to maintain graves was valid within a 21-year limit.

Question 15

What makes a trust a valid Re Denley trust, and how does it bypass the beneficiary principle?

Answer 15

1. Key Features of Re Denley Trusts:
   * Purpose is Clear and Tangible: The trust’s purpose must be specific, identifiable, and benefit real people.

• Beneficiaries Are Ascertainable: The individuals benefiting from the trust must be identifiable and satisfy the conceptual certainty test.
• Rule Against Inalienability Compliance: The trust must either:
• Be limited to 21 years; or
• Allow the trustees to spend all capital on the purpose.

2. Why Valid Despite the Beneficiary Principle?

• Beneficiaries (even indirectly benefiting individuals) have the legal standing to enforce the trust.
• This ensures the court can supervise the trust effectively.

3. Key Case:
   * Re Denley’s Trust Deed [1969]: A trust to maintain a sports ground for employees of a company was valid because employees could enforce the trust.

Question 16

What are the essential criteria for a valid Re Denley trust?

Answer 16

1. Purpose:
   * Must be clear, tangible, and achievable.
   * Example: “Building a gym” is a valid, tangible purpose.
2. Beneficiaries:
   * A conceptually certain and ascertainable group of individuals must stand to benefit.

• Given Postulant Test: The description of beneficiaries must enable a clear determination of who qualifies.
• Example: “Employees of King International Limited” passes the test
  .
  3. Rule Against Inalienability:
• Trustees must not be obligated to retain capital indefinitely.
• Example: “Maintaining a gym indefinitely” fails unless the trust specifies a 21-year limit.

Question 17

Provide practical examples of valid and invalid Re Denley trusts.

Answer 17

1. Valid Example:
   * “I give £500,000 to trustees to build a gym for employees of King International Limited.”

• Purpose: Building a gym is clear and tangible.
• Beneficiaries: Employees are ascertainable and satisfy conceptual certainty.
• Rule Against Inalienability: Trustees can spend all the capital, avoiding indefinite retention.

2. Invalid Example:
   * “I give £500,000 to trustees to build and maintain a gym for employees of King International Limited forever.”

• Issue: Maintenance creates an indefinite obligation, violating the rule against inalienability.

Question 18

What are trusts of imperfect obligation, and how are they valid despite lacking enforcement mechanisms?

Answer 18

1. Definition:
   * Trusts created for specific purposes (e.g., caring for a pet or maintaining a grave) that offend the beneficiary principle but are allowed as anomalies.
2. Key Characteristics:
   * Validity: These trusts are legally valid if they comply with the rule against inalienability of capital.

• Enforceability: No one can compel trustees to carry out the purpose. Trustees act voluntarily, and if they do not, the trust property reverts to the settlor’s estate or beneficiaries.

3. Key Cases:
   * Re Hooper [1932]: A trust for maintaining graves was upheld as valid.

• Re Dean [1889]: A trust for the maintenance of specific animals (e.g., a horse) was upheld.

Question 19

Provide examples of trusts of imperfect obligation and explain why they are valid.

Answer 19

1. Animal Maintenance Trust:
   * “I leave £20,000 to maintain my dog, Max, for as long as the law allows.”

• Valid because it is for the care of a specific animal.
• Compliance: The phrase “for as long as the law allows” ensures compliance with the 21-year limit.

2. Grave Maintenance Trust:
   * “I leave £10,000 to maintain my family’s tombs.”

• Valid because the purpose (grave maintenance) is recognized as a trust of imperfect obligation.

3. Limitations:
   * If trustees do not use the funds for the stated purpose, no one can enforce it in court.

Question 20

What is the rule against inalienability, and how does it affect non-charitable purpose trusts?

Answer 20

1. Definition:
   * A trust must not tie up capital indefinitely. Non-charitable purpose trusts must comply with this rule by:

• Limiting the duration of the trust to 21 years; or
• Allowing trustees to spend all the capital on the stated purpose.

2. Practical Compliance:
   * Valid Trust: “£50,000 to build a park.” Trustees can spend the full amount immediately, ensuring compliance.

• Invalid Trust: “£50,000 to maintain a park forever.” Indefinite maintenance violates the rule.

3. Key Case:
   * Re Hooper [1932]: A trust for grave maintenance was valid because it complied with the 21-year limit.

Question 21

Why are trusts of imperfect obligation considered unenforceable?

Answer 21

1. No Human Beneficiaries:
   * These trusts lack human beneficiaries who can bring legal action to enforce the trust.
2. Voluntary Nature:
   * Trustees may fulfill the purpose out of goodwill or moral obligation but are not legally compelled.
3. Reversion of Property:
   * If trustees fail to act, the property reverts to the residuary beneficiaries or the settlor’s estate.
4. Example:
   * “£20,000 to care for my dog, Max.” If trustees neglect Max, no one can compel them, and the remaining funds may return to the settlor’s estate.

Question 22

Why are trusts of imperfect obligation not extended beyond specific purposes?

Answer 22

1. Recognition of Anomaly:
   * Courts acknowledge these trusts as exceptions due to human sentiment (e.g., caring for pets or maintaining graves).
2. Strict Limitations:
   * Courts are reluctant to extend the scope of imperfect obligation trusts to avoid undermining the beneficiary principle.
3. Key Case:
   * Re Astor’s Settlement Trusts [1952]: A trust for vague purposes, like improving public opinion, failed due to lack of enforceability and clear beneficiaries.

Question 23

How do Re Denley trusts differ from trusts of imperfect obligation?

Answer 23

1. Re Denley Trusts:
   * Enforceability: Beneficiaries (e.g., employees) have legal standing to enforce the trust.

• Purpose: Tangible, specific, and benefits ascertainable individuals.
• Compliance: Must not breach the rule against inalienability of capital.

2. Imperfect Obligation Trusts:
   * Enforceability: Unenforceable, reliant on trustees’ goodwill.

• Purpose: Limited to specific exceptions (e.g., animals, graves).
• Compliance: Must adhere to the 21-year rule or allow immediate spending of capital.

3. Key Distinction:
   * Re Denley trusts serve ascertainable beneficiaries, while trusts of imperfect obligation serve specific purposes without human beneficiaries.

Question 24

What are the key steps to determine whether a purpose trust is valid?

Answer 24

1. Declaration of Trust: Must meet the 3 certainties (certainty of intention, subject matter, and objects).
   
   2. Charitable Trust:
      * (a) Does it have a charitable purpose?
      * (b) Does it satisfy public benefit?
      * (c) Is it exclusively charitable?
      * Yes → Valid Charitable Trust
      * No → Proceed to next step
   3. Valid Non-Charitable Purpose Trust:
      * (a) Is it a Re Denley trust?
      * (b) Is it a Trust of imperfect obligation?
      * No → Invalid Trust
   4. Rule Against Inalienability of Capital:
      * (a) Is it limited to 21 years?
      * (b) Does it allow trustees to spend all trust capital on the purpose?
      * Yes → Valid Non-Charitable Purpose Trust
      * No → Invalid Trust
   5. Formalities (if land is involved): Comply with s.53(1)(b) of the Law of Property Act 1925 (evidenced in signed writing).