Head 21: Unlawful Purposes

Question 1

What are the categories of unlawful trust purposes?

Answer 1

Certain trust purposes (including bequests in wills) are unlawful and cannot be enforced. Apart from illegality under the general law[ E.g. a trust for the promotion of terrorism is void.], the main categories are:
⁃ 1) Unlawful accumulation of income
⁃ 2) Restrictions on liferents
⁃ 3) Purposes contrary to public policy

Question 2

What is unlawful accumulation of income?

Answer 2

Building up income instead of distributing it to beneficiaries in order to build up a lump sum is unlawful[ This applies to all trusts but it is not clear exactly what the scope of this rule is (especially in relation to e.g. pension trusts - the essence of these trusts is to accumulate income until the person retires).].

Question 3

When can unlawful accumulation income be permitted?

Answer 3

The rules are contained in the Trusts (S) Act 1961 s 5:
⁃ There are 6 permitted periods during which income may be accumulated (and only one can apply):
⁃ 1) The life of the truster[ Inter vivos trusts, only??]
⁃ 2) 21 years from the death of truster[ For mortis causa trusts, only???]
⁃ 3) 21 years from the date of creation of trust[ For inter vivos trusts, only??]
⁃ 4) Minority (0-21) of person living or in utero at death of granter
⁃ 5) Minority (0-21) of person who if of full age would get income
⁃ 6) Minority (0-21) of person living or in utero at date of creation of trust.

So once this period elapses, income has to be distributed to the beneficiaries.

Question 4

Inter vivos trust of capital and accumulation trust where the income is for the son when he reaches the age of 21.

Answer 4

This is covered by period 6 above.

Question 5

Mortis causa trust of liferent to wife and on her death the capital to be divided among existing grandchildren with each getting a share when they are 21.

Answer 5

This is fine - covered by period 5.

Question 6

Can more than one period apply?

Answer 6

Only one period can apply so it is sometimes difficult to decide which period applies if the trust deed is silent or ambiguous.

Question 7

What happens once the period ends?

Answer 7

Once the period ends the income must be distributed to the people who are then entitled to it - it may be that it falls into intestacy.

Question 8

What are the problems with the periods available?

Answer 8

Sensible trust provisions for disabled children are not possible. One may like the trustees to be able to accumulate unspent income for use later where the cost of care would be more, but there is a limit to how far you can do this (period 3: 21 days from the date of the deed, or period 1: lifetime of the granter). There is no period of the lifetime of the disabled beneficiary themselves.

Question 9

What are the restrictions on the granting of liferents?

Answer 9

A liferent may be granted only for persons alive or in utero at the date when the deed creating liferent comes into operation, Law Reform (Misc Provs)(Sc) Act 1968, s 18 for post 1968 deeds, Entail Amendment Act 1848, ss 47-49 for earlier deeds. An inter vivos trust comes into operation when created; a mortis causa trust on death of the testator.

If a liferent is given to someone of full age (over 18) who is born after the date of creation then they become the owner of the life rented property and the trustees must make over the property to them. But if they are under 18 at the time then they carry on receiving the liferent until they reach 18.

Question 10

⁃ Robert set up an inter vivos trust for his brother’s family in 1985. He reserved a liferent for himself and after his death provided for a liferent for his brother.[ Successive liferents are valid - but not ones which were created in favour of persons not in life at the date of creation.] On his brother’s death the trust property was to be divided into equal parts, one for his each of his brother’s children, his own nephews and nieces. These nephews and nieces were each to get a liferent of their respective part, with the capital going to their respective issue as and when they die. His brother had 3 children in 1985, a fourth was born in 1989 and the fifth in 1997. Robert died in 2000 and his brother in 2012. Robert enjoyed his liferent from 1985 to 2000. Thereafter the brother had the liferent. The Act does not prevent a series of liferents as such. Position of the five children?

Answer 10

Since the first three children were all alive at the date of the liferent they are fine. However child 4 was born after the trust came into operation and is now 25 - thus he is entitled to the fee. However child 5 is only 17 so he gets the liferent at the moment and then receives the fee when he is 18.

DONT REALLY UNDERSTAND THIS!!!!! NEED TO LOOK UP!!!
SEE DIAGRAM

Question 11

What happens if the trust is contrary to public policy?

Answer 11

If the purpose of the trust is contrary to public policy then it will be struck down and the whole trust will be void. This policy really began with the McCaig cases:

Question 12

*M’Caig v University of Glasgow 1907

Answer 12

⁃ McCaig died in 1907. His will provided for towers to be built on prominent parts of their estates. These towers were to be filled with statues. But these were not to be open to the public.
⁃ The court held that some beneficial interests or rigths must be conferred on some individuals or the public for this to be valid. There clearly was no benefit on any individual and nor was it conferred on the public either. The court held therefore that the scheme was a waste of money and thus struck it down as being contrary to public policy.

Question 13

*McCaig’s Trs v Kirk Session of United Free Church of Lismore 1915

Answer 13

⁃ This was McCaig’s sister who left a will saying that the McCaig tower was to be filled with gigantic bronze statues commissioned at vast expense and again the tower was to be locked and not open to the public.
⁃ The court held that on the basis of public policy that this scheme was a waste of money which conferred no public benefit at all - thus it was struck down.

Question 14

How as the law developed since the McCaig cases?

Answer 14

From these cases the law has developed. If a provisions confers no benefit then it will be struck down. But if there is a public benefit then it will endure

Question 15

Campbell Smith’s Trs v Scott 1944

Answer 15

⁃ The testator left a large sum of money (around £0.5m in todays money) for a worthy public monument in a suitable conspicuous location in Edinburgh to commemorate the Royal Scots Regiment.
⁃ This was held to confer a public benefit since the city has been linked with the Regiment for many centuries. Thus this was not struck down.

Question 16

Sutherland’s Trs v Verschoyle 1968

Answer 16

The following case is somewhere in between…

⁃ The testator left her fine art collection to trustees and also the residue of the estate to acquire a suitable building in St Andrews to maintain the collection. This would have been fine but the collection was rubbish - it really wasn’t worth anything at all.
⁃ So while there is a clear public benefit in having museums and galleries open to the public. But this was rubbish - a lot of it consisted of copies and the proposed expenditure was disproportionate to the amount of public benefit that would be obtained from it - thus it was stuck down.
⁃ [Thus if it had been a better collection then it would have been okay but since it was so poor it was stuck down.]

Question 17

What are the exceptions to the public policy rule?

Answer 17

Some things are allowed which really confer no public benefit but they are allowed on the basis of sentimentality - they are minor exceptions to the public policy rule:

1. Funeral monuments[ Appropriate to the status of the deceased - if you are very important then you will probably be able to get away with a larger monument (but see Aitkens)]
2. Memorials
3. Maintenance of pets (Flockhart’s Trs v Bourlet 1934)
   If this is to be allowed then the provision must be reasonable. The money cannot be left directly to the pets (since they have no legal personality) so it must be provided for in trust.
4. Flowers on the grave
   ⁃ This is allowed but it is subject to reasonableness in terms of duration and cost.
   ⁃ Lindsay’s Ex v Forsyth 1940

Question 18

Aitken’s Trs v Aitken 1927

Answer 18

⁃ Aitken was a very self important citizen of Musselburgh. He gave directions for an enormous equestrian statue of himself to be erected in the middle of Musselburgh. “A massive equestrian bronze statue of artistic merit, representing me as a Champion at the Riding of the Towns Marches; for this purpose the present building will be removed and the site enclosed in an artistic manner and laid out with shrubs or otherwise; the whole work is to be done unsparing of expense”.
⁃ The court held that this was a grotesque waste of money and far from glorifying the name of Aitken it would cause his family to be laughed to scorn - so this was stuck down.
- Held: directions were invalid as it conferred neither patrimonial benefit nor public public and directions were unreasonable.
- NB authorities in this area are confused.

Question 19

Flockhart’s Trs v Bourlet 1934

Answer 19

⁃ Flockhart was given the pets and each pet was to be given an annuity of £50. This breaks the legal persona rule because the annuity is being given to a non-person. The court held that the obvious intention was to provide the new owner with money to keep the pets for as long as they lived, and £50 per pet per year was reasonable at that time.

Question 20

Lindsay’s Ex v Forsyth 1940

Answer 20

⁃ A sum of £1000 was left and the income was to provide fresh flowers on the grave of the woman and her mother in perpetuity.
⁃ This was struck down as extravagant since it was perpetual.
⁃ Another £1000 was left and the income of this was to be used to pay the church to say masses every two weeks for the souls of the woman and her mother
⁃ This was regarded as being permissible because the court heard evidence that this was in fact regarded as part of the income of the church and therefore it is a gift for religious purposes and therefore it is charitable and permitted.

Question 21

What happens if the trust purposes are invalid from the start?

Answer 21

If there are trust purposes which are invalid from the start (initial failure) then:
⁃ In an inter vivos trust the property returns to the truster if still alive, or to the truster’s estate if dead (this is called a resulting trust[ Not too sure about this - look up!]).
⁃ In a mortis causa trust then the property will fall into the residue (or if residue then it will fall into intestacy).

Question 22

When is initial failure not necessarily a bar in trusts?

Answer 22

But note, in public trusts, initial failure is not necessarily a bar - the court will step in to see if it can be put right either by providing machinery or if a general charitable intention trust trying to give effect to it in some other way.