CHARITABLE AND OTHER PURPOSE TRUSTS Flashcards
type of purpose trust
There are trusts for public purposes, otherwise known as ‘charitable trusts’, and trusts for private purposes, known as ‘noncharita-ble purpose trusts’.
3
DISTINCTIVE RULES APPLY TO CHARITABLE TRUSTS
- No Requirement ofAscertainable Human Benefciaries
- Cy-Pres Doctrine Applicable
- May Be Perpetual
No Requirement ofAscertainable Human
Benefciaries
for charitable trusts
The rules which require a private trust to have ascertainable human benefciaries do not apply to charitable trusts. Neither does the requirement of certainty of objects. A charitable trust for an abstract purpose, such as the relief of poverty, is valid.
Cy-Pres Doctrine Applicable
If it is impossible to give the settlor’s intention effect (for example, the designated charity goes out of existence), the doctrine of cy-pres allows a court to redirect the trust to a purpose “as near as possible” to the charitable purpose initially designated by the settlor.
3
REQUIREMENTS FOR A CHARITABLE TRUST
- Purpose Must Be Charitable
- Must Be for Public Benefit
- Purpose Must Be Exclusively Charitable
Purpose Must Be Charitable
A trust will qualify as a charitable trust only if it is for one of the following purposes provided in the Charities Act of 2011 (‘Charities Act’):
*The prevention or relief of poverty;
*The advancement of education;
*The advancement of religion;
*The advancement of health or the saving of lives;
*The advancement of citizenship or community development;
*The advancement of the arts, culture, heritage, or science;
*The advancement of amateur sport;
*The advancement of human rights, confict resolution or reconciliation, or the promotion of religious or racial harmony or equality and diversity;
*The advancement of environmental protection or improvement;
*The relief of those in need because of youth, age, ill-health, disability, fnancial hardship, or other disadvan-tage;
*The advancement of animal welfare;
*The promotion of the efciency of the armed forces of the Crown or of the efciency of the police, fre and rescue services, or ambulance services; and
*Other purposes previously recognised as charitable, such as recreational charities, or which fall within the spir-it of the purposes listed above or in the old law.
5
Must Be for Public Beneft
- It is not enough that the purpose is charitable—it must appear that the trust will bestow (1) an identifable beneft (2) to the public or a section of the public.
- The purpose must beneft the public** in general**, or a sufficient cross-section of the public, such as the inhabitants of a particular area.
- If the group which stands to benefit is defined** by reference to the relationship of the group’s members with a private individual or business**, the trust is for a private group and will fail. For example, a trust for the education of the children of the employees of a company does not satisfy the public beneft test. However, this rule has not traditionally been applied to trusts for the relief of poverty, so long as the individuals who benefit are not named. Thus, a trust for the settlor’s poor relations has been held charitable.
- A charity which charges fees may fail the public beneft test if only those who can afford to pay the fees can beneft.
- The fact that an otherwise valid charitable trust incidentally benefts some private individuals will not prevent the trust from being deemed charitable. For example, provisions in a trust for paying staff who occupy key roles in the charity will not invalidate the trust’s charitable nature.
Political Purposes Are Not Charitable
A charitable trust cannot have political purposes, and political parties cannot be charitable. A trust whose main purposes include campaigning for a change in the law or the dissemination of the ideas of a particular political party is not charitable since the court cannot decide that there is a public beneft in one side of a political argument. However, a trust whose political activity is merely **ancillary **to its main purpose will not fail on this basis.
EXAMPLE
A trust’s purpose is to help the homeless. In the course of its activities, it campaigns for more low cost housing to be provided. Although this activity is political, it is ancillary to the main purpose of the charity and will not cause it to lose its charitable status.
COMPARE
A trust whose main purpose was to seek the repeal of laws allowing the use of animals for medical experimentation was found not to be charitable. (National Anti-Vivisection Society v Inland Revenue Commissioners [1948] AC 31)
Purpose Must Be Exclusively Charitable
Charitable trusts must be wholly and exclusively charitable. Noncharitable purposes are not permitted unless they are merely **incidental **to the principal charitable purpose.
EXAMPLE
An educational charity provides university grants to the children of those living below the poverty line. The char-ity uses its funds to pay for an annual dinner held for the trustees as thanks for their work. The dinner is an incidental purpose and would not contravene the charitable status of
the charity.
Each Purpose Must Be Charitable
Where a trust contains more than one purpose, each one must be of a charitable nature. However, if a trust directs trustees to divide gifts between some charitable and some noncharitable objects, the court can sever the charitable part from the non-charitable part and allow the charitable part to take efect.
T bequeaths £100,000 to trustees to divide the income into two parts and distribute it “one part to such educational institutions and the other to such worthy individuals as the trustees should select”. The fund may be divided and the first part applied as directed. The second part fails as a private discretionary trust on two grounds: the objects do not meet the relevant test of certainty, and the power to distribute income to worthy individuals can be exercised beyond the period of the Rule Against Perpetuities.
3
RULE AGAINST PERPETUITIES
- Unlike private trusts, charitable trusts may be perpetual. The Rule Against Perpetuities does not apply to charitable trusts in the same way as private trusts.
- Inalienability Rule Does Not Apply
Generally, the inalienability rule prevents the capital of a trust from being held indefinitely while the income is applied for some private purpose. The rule does not apply to charitable trusts; so, a direction to trustees of a charity to invest the cap-ital and apply the income for the charitable purpose is valid. - As with a private express trust, the initial gift to a charity must vest within the perpetuity period. However, a gift from one charity to another can take efect at any distance in time.
EXAMPLE
“To the Newtown YMCA for so long as the premises are used for YMCA purposes, and if the premises shall ever cease to be so used, then to the Newtown Fund for the Re-lief of Poverty”. The gift is valid under the charity-to-charity exception.
2
CY-PRES
- Initial Failure of Gift—General Charitable
Intention Required
If a charitable gift or trust is impossible or impractical to carry out at the time it comes into operation, the court can apply the funds cy-pres only if the settlor has shown a general charitable intention. Initial failure most commonly occurs where the gift is made in a will. - Subsequent Failure of Gift—No Charitable
Intention Required
If the objectives of a charitable trust become impossible or impractical to carry out after it has come into operation, the funds may be applied cy-pres without any requirement to show general charitable intention on the part of the settlor.
Exam Tip
If a gift to charity in a will fails because the charity hasclosed down, check the date of the closure. If it is after the testator’s death, the gift has already vested and you do not need general charitable intention.
4
Indications of General Charitable Intention
a.Gift to Specifc Named Charity
Where a testator has taken care to identify a specifc named charity in their will, general charitable intention is difficult to find. In a case where the charity named in the will never exist-ed, it is easier to infer general charitable intention.
b.Other Gifts to Charity
The court will look at the will as a whole, and if there is more than one gift to charity, a general charitable intention is more likely.
c.Detailed Plans
Where a testator has set out plans for the establishment of a charitable trust but there are insufficient funds to carry them out, the court is less likely to find a general charitable intention if the plans are very detailed.
d.Proceeds of Collecting Boxes and Anonymous Gifts
General charitable intention is not required where money has been collected or raised and the donors are not known, even in cases of initial failure.
EXAMPLE
Funds have been raised to buy land as a sports ground for village children. The target is not met and there is not enough money to carry out the charitable purpose. The funds may be applied cy-pres where the donors are unknown.
NONCHARITABLE PURPOSE TRUSTS
Courts apply the benefciary principle to most private trusts. In other words, a private trust generally must have ascertain-able human benefciaries to enforce it. Thus, a trust for an abstract purpose which is not charitable will fail . There are, however, some private purpose trusts which are valid, including:
*Denley trusts;
*Trusts for the maintenance of particular animals;
*Trusts for the saying of private masses; and
*Trusts for the erection and maintenance of monuments and graves.
Underlying Human Benefciaries—Denley
Trusts
