Purpose trust Flashcards
To be valid, a trust must have a beneficiary to enforce it. According to Lord Millet tin Twinsectra v Yardley, who were the beneficiaries of the Quistclose trust?
The sharehiolders.
The borrower.
There are no beneficiaries in a Quistclose trust
The lender.
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Correct, well done. The answer is D. In Twinsectra, Lord Millet examined where the beneficial interest of the trust might be pending the application of the loan for the purpose. Having rejected various options as unconvincing he stated that the Quistclose trust was “an entirely orthodox example of the kind of default trust known as a resulting trust. The lender pays the money to the borrower by way of loan, but he does not part with the entire beneficial interest in the money, and in so far as he does not it is held on a resulting trust for the lender from the outset. The borrower who has a very limited use of the money, being obliged to apply it for the stated purpose or return it. He has no beneficial interest in the money, which remains throughout in the lender subject only to the borrower’s power or duty to apply the money in accordance with the lender’s instructions”.
A trust “for the relief of poverty” is void for uncertainty of object and because it offends the beneficiary principle.
Is this statement TRUE or FALSE?
True
False
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Correct, well done. The statement is false. The “relief of poverty” is a charitable purpose (s3(1)(a) Charities Act 2011) and such a purpose is accepted as being for the public benefit. Such a trust would, therefore, be charitable; charitable trusts are not subject to certainty of object rules or the beneficiary principle.
When considering whether a trust is valid as a non-charitable purpose trust under the principle from Re Denley, which ONE of the follow statements is CORRECT?
The trust only needs to provide a tangible benefit to an ascertainable group of beneficiaries to be valid.
A non-charitable purpose trust could be valid under the principle from Re Denley provided the group of beneficiaries receiving a tangible benefit from the purpose are not linked by a personal nexus.
For a trust to be valid under the principle from Re Denley, there must be certainty of both the purpose and objects.
Unlike trusts intended to benefit specific individuals, a non-charitable purpose trust does not have to consider the issue of perpetuity
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Correct, well done. To be valid under Re Denley, a non-charitable purpose trust must satisfy all the required four elements. Therefore, the answer is C. There must be a group of ascertainable people who will receive a tangible benefit from the purpose. That group of people must be described with sufficient certainty. (It is thought the relevant test is the given individual test requiring conceptual certainty.) The purpose must also be described with certainty, so the trustees know what they are expected to do. A is not correct because there are other conditions which must be satisfied under the principle from Re Denley – compliance with the rule on alienability and certainty of purpose and objects. B is not correct as personal nexus is not a relevant consideration for non-charitable purpose trusts. It is only relevant when considering public benefit matters in charitable purpose trusts. D is not correct as a non-charitable purpose trust must also satisfy the perpetuity rule on inalienability – the purpose must be capable of being fulfilled on a one and for all basis or the trust will come to an end in 21 years.
Which ONE of the following offends the rule against inalienability?
A trust to buy sports equipment for use by the employees of Mega Co.
A trust to maintain the Griffiths family tomb in Hartford cemetery.
A trust to provide annual summer parties for students and staff at the University of Law for as long as the law allows.
On trust to invest the capital and use the income to pay for the education of the children of the Herbert family for the next 15 years
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Correct, well done. The answer is B. The rule against inalienability invalidates a trust if the trust capital cannot be spent within the perpetuity period. Option B offends the rule against inalienability because the trust is for a continuing purpose which is to last indefinitely. In B, the capital would be invested indefinitely to produce the income to fund the maintenance. A does not offend the rule because the capital can be spent once and for all on purchasing the sports equipment. C and D are valid because they are expressly confined to the perpetuity period.
The class of people who can benefit from a charitable purpose trust can be limited, provided the limits are justifiable given the nature of the purposes of the trust itself.
Is this statement true or false?
True
False
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Correct, well done. The statement is true. It is not necessary for a charitable purpose to benefit the whole public. A benefit which accrues to a sufficiently large section of the public will be acceptable. What is a sufficiently large section of the public varies according to the purpose of the trust. Any limitation must be legitimate and proportionate. A personal nexus between the people benefiting from the purpose or arbitrary limitations which give rise to a class within a class are not sufficiently large sections of the public.
In Barclays Bank v Quistclose, the House of Lords decided that the lender had lent the money on trust to pay the dividends to shareholders but, if this could not happen, on a secondary trust for the lender
What facts indicated that the lender displayed certainty of intention to create a trust?
Choose ONE of the following answers.
The lender lent the money expressly “on trust” to pay the dividends.
The bank opened a new bank account for the money.
The lender lent the money for the sole purpose of paying dividends.
The lender wanted to give the shareholders an equitable interest in the money.
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Correct, well done. C is the correct answer. The fact that the money was lent for an exclusive purpose meant that the borrower was not free to spend the money in any way it pleased; according to the House of Lords this indicated that a trust was intended. Answer A is wrong because the words “on trust” did not appear in any of the correspondence detailing the purpose of the loan. In any event, an intention to create a trust can be evidenced by words or conduct (Paul v Constance). Answer B is wrong because the intention of the settlor (the lender) is what counts not that of a third party. Option D is wrong because the intention of the settlor was to protect its own money by way of a trust until the shareholders received the dividend.
A valid will includes the following provision: “I give my shares in Morris Ltd to my executor on trust to use the income to provide tuition in choral singing for anyone living in Manchester.”
Which ONE of the following statements is CORRECT?
The trust will not succeed as a charitable purpose trust because it does not satisfy the rule against inalienability of capital.
As singing is not a charitable purpose, the provision cannot be valid as a charitable purpose trust.
The trust will be valid as a charitable purpose trust as there is public benefit to a sufficient section of the public.
The trust will be valid as a non-charitable purpose trust.
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Correct, well done. The answer is C. A charitable purpose trust must have an identifiable charitable purpose which it does (advancement of education), and it must be for the public at large or a sufficient section of the public. There is no personal nexus, and the class description is potentially wide enough; inhabitants of a large city such as Manchester would be sufficient. A is not correct because the rule against inalienability does not apply to charitable purpose trusts. B is not correct because this purpose would probably fall within the advancement of education (or the advancement of the arts, culture, heritage, or science, a charitable purpose within s3 Charities Act 2011). D is not correct because the clause provides that only income is to be used and gives no end to the trust within the (21 year) perpetuity period. This will not succeed as a non-charitable purpose trust because of the rule against inalienability of capital.
A testator’s will contains a legacy of £100,000 on trust to be spent on such benevolent and philanthropic purposes as my trustees think fit. Benevolent and philanthropic purposes are not charitable.
Which TWO of the following statements are correct? (To obtain credit for this question you must identify BOTH correct statements).
The trust is void because it offends the rule against inalienability.
The trust is void because the purpose is uncertain
The trust is void because it has no ascertainable beneficiaries and therefore offends the beneficiary principle.
The trust is a valid discretionary trust.
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Correct, well done. The answers are B and C This is a purpose trust which is generally void unless is qualifies as a charitable purpose trust (which you were told it did not) or it satisfies all the requirements under Re Denley. Here the purpose is vague, and no identifiable group of people will receive a tangible benefit from the purpose. A is not correct; this trust does not offend the rule against inalienability because the terms of the trust allow the trustees to spend the capital on the purpose. D is not correct as this is not a trust intended to benefit a class of specific individuals. The trustees are instructed to do something with the trust fund. It is a purpose trust.
Which ONE of the following is VOID because it offends the beneficiary principle?
‘On trust to advance equality and diversity in the United Kingdom’.
‘On trust to improve the standard of politeness in the town of Reading.’
‘On trust to build a swimming pool for use by the employees of Geronimo Ltd.’
‘On trust to maintain my horse, Flash, for 21 years after I die.’
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Correct, well done. The answer is B. This is a purpose trust with no ascertainable beneficiaries (and a purpose that is not charitable). A is charitable (s3(1)(h) Charities Act 2011) and therefore, is not subject to the beneficiary principle. In C, the employees are ascertainable beneficiaries who could enforce the trust (Re Denley). D is an exception to the beneficiary principle (Re Dean).
. A man’s will trust contains the following provisions:
‘Clause 8: I give £25,000 to my Trustees to maintain the changing rooms and shower blocks at the Rushcliffe swimming club’s site in Nottingham …
Clause 12: Following the payment of my debts, funeral expenses, all gifts under this will and inheritance tax, whatever remains shall belong to my wife.’
The Rushcliffe swimming club is a non-charitable organisation.
Does clause 8 create a valid trust?
Yes, because it satisfies the three certainties.
Yes, because the members of the Rushcliffe swimming club can enforce its terms.
No, because the Trustees are holding the money to achieve a purpose, and all-purpose trusts are void.
No, because the Rushcliffe swimming club is not a charity.
No, because the trust locks capital away for too long.
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Well done. Option E is correct. The testator has tried to create a non-charitable purpose trust. Clause 8 can overcome the beneficiary principle – the trust provides a clear and tangible benefit for an ascertainable group of individuals (the members of the swimming club). However, as the Trustees must maintain the changing rooms and swimming blocks, which is an ongoing obligation, the trust capital might be locked away in perpetuity. The trust is therefore void for offending the rule against inalienability of trust capital. The trust fund (£25,000) will therefore fall into residue for the benefit of the wife.
Option A is wrong. Whilst this option correctly identifies that clause 8 satisfies the three certainties, that is not by itself sufficient to create a valid trust. As clause 8 is seeking to create a purpose trust, the declaration of trust must overcome the beneficiary principle and the rule against inalienability of trust capital. It does not overcome the latter.
Option B is wrong. Whilst this option correctly identifies that the trust can overcome the beneficiary principle (as the members of the swimming club can enforce its terms), that is not by itself sufficient to create a valid trust. As this trust is non-charitable, clause 8 must not offend the rule against inalienability of trust capital. Unfortunately, it does.
Option C is wrong. Not all-purpose trusts are void – some are, but many are effective.
Option D is wrong. Just because the club is not a charity does not mean that the trust must be void – some non-charitable purpose trusts can be effective
A woman’s will contains the following provisions:
‘Clause 3: I give £200,000 to my Trustees to educate the young people of Cornwall about the importance of water safety …
Clause 17: Following the payment of my debts, funeral expenses, all gifts under this will and inheritance tax, whatever remains shall belong to The British Red Cross Society.’
Which of the following statements provides the best advice to the Trustees about clause 3?
Clause 3 does not create a valid trust because ‘the young people of Cornwall’ is not conceptually certain.
Clause 3 dos not create a valid trust because the purposes are not exclusively charitable.
Clause 3 does not create a valid trust because the section of public who will benefit from the purpose are bound by a personal nexus.
Clause 3 creates a valid trust because the purposes are charitable, and the benefit accrues to a sufficiently large section of the public.
Clause 3 creates a valid trust as there is a clearly ascertainable class of people who can enforce the trust.
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Well done. Option D is correct. Clause 3 creates a valid charitable trust. The purpose (education and/or the saving of lives) falls within the list of charitable purposes under s 3(1) of the Charities Act 2011; the benefit accrues to a sufficiently large section of the public; and the purposes are exclusively charitable. If the Trustees do not know how to apply the money, they could seek further guidance from the Charity Commission.
Option A is wrong. Whilst this option correctly states that the ‘young people of Cornwall’ is conceptually uncertain, as they are not the object of the trust (the object is the charitable purpose of educating them about water safety), this is irrelevant.
Option B is wrong. The trust is exclusively charitable. There is no suggestion that the woman wanted the Trustees to engage in political activities.
Option C is wrong. The young people in Cornwall are not linked by relationships to a particular individual or company. Therefore, they are not linked by a personal nexus.
Option E is wrong. The ‘young people of Cornwall’ is not conceptually certain – there will be legitimately different views about when people stop being ‘young’. It cannot be said therefore that there is a clearly ascertainable class of people who can enforce the trust. However, option E is also irrelevant given that the trust is charitable.
A valid will contains a series of provisions.
Which of the provisions is likely to create a valid purpose trust?
I give £30,000 to my Trustee to use the income to provide students at Twycombe High School with educational outings to museums around England and Wales.
I give £30,000 to my Trustee to provide annual garden parties for the next twenty-five years for all the students and staff at the Twycombe University.
I give £30,000 to my Trustee to provide a shelter for ill-treated dogs in the Twycombe area and to exert pressure on the authorities to increase penalties for animal cruelty.
I give £30,000 to my Trustee to encourage all my family living in Twycombe to cycle to work.
I give £30,000 to my Trustee to campaign against local government’s proposed development of a wind farm in the Twycombe area.
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Well done. The correct answer is Option A. This would likely be valid as a charitable purpose trust There is a charitable purpose (advancement of education). It is exclusively charitable. Both limbs of public benefit are satisfied - the provision of museum outings would be a benefit and the benefit is to a sufficient section of the public. Here the purpose is for the benefit of the students at a specific high school. Benefits can be restricted to a particular geographical area provided it is not too small (IRC v Baddeley); benefits could also be restricted to the young if the aim of the trust is to educate young people which it appears is what is intended. As a charitable purpose trust, the fact that only income can be used to fund the outings is irrelevant.
Option B is wrong because although the students and staff at the University will derive tangible benefit from the purpose so as to enable them to enforce the trust, the rule against inalienability of capital is not satisfied as the trust is to last longer than law allows.
Option C is wrong because although establishing the shelter could be classed as a charitable purpose (animal welfare), exerting pressure to change the law is political. The purpose is, therefore, not exclusively charitable (Attorney General V McGovern) and therefore not valid as a charitable purpose trust. The purpose also does not succeed as a non-charitable purpose as it is not to maintain a specific dog but relates to general canine welfare.
Option D is wrong because although the purpose might be charitable (advancement of health, or amateur sport), there is insufficient public benefit due to the personal nexus arising from the common family connection (Re Compton). It would not succeed as a non-charitable purpose trust due to the rule against inalienability of capital.
Option E is wrong because this is a purpose trust. The purpose is political (campaigning for a change in the law) so the purpose cannot be charitable. The purpose does not provide tangible benefit to an identifiable group of people to enable them to enforce the trust (Re Denley); it is, therefore, not valid as a non-charitable purpose trust as it offends the beneficiary principle.
A woman executed a trust deed that contained the following provision:
‘I give £200,000 to my Trustees to campaign for legislation to promote better standards of behaviour among those occupying public office.’
The Trustees appointed under the trust deed seek legal advice as to what to do with the £200,000.
Is the trust valid?
Yes, because the purpose is charitable.
Yes, because there is sufficient public benefit.
No, because it is not exclusively charitable.
No, because there is no certainty of subject-matter.
No, because it fails to satisfy the complete list test.
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Well done. Option C is correct. The trust is not exclusively charitable because the settlor is seeking to change the law, which is a political (not charitable) purpose. Furthermore, the trust cannot work as a non-charitable purpose trust because there are no ascertainable beneficiaries who will derive a sufficiently tangible benefit to enforce the trust.
Options A and B are wrong. There may arguably be a charitable purpose (e.g., the promotion of citizenship) that is of benefit to the public, but that is not sufficient by itself to make the trust valid.
Option D is wrong. There is certainty of subject-matter, being the sum of £200,000.
Option E is wrong. The complete list test is relevant when assessing the validity of fixed interest trusts for individuals. It is not relevant here.
A valid will contained the following provision:
“I give £100,000 to my trustee to be held on trust for as long as the law allows to provide grants to children of employees of X Industries Ltd who go to university.”
Which of the following statements best explains why the provision will be valid or not?
The trust will be void as a purpose trust because it lacks certainty of object.
The trust will be void because this is a purpose trust, and it does not satisfy the rule on alienability.
The trust will be void because it lacks sufficient public benefit.
The trust will be valid because the children of the employees of X Industries will be able to enforce it.
The trust will be valid because advancement of education is a charitable purpose.
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Well done. The correct answer is Option D. The children derive sufficient tangible benefit from the purpose. Both they and the purpose are sufficiently certain (Re Denley). The children will, therefore, have standing to enforce the purpose so satisfying the beneficiary principle. The provision will therefore be valid as a non-charitable purpose trust.
Option A is wrong because there is both certainty of object in the description of the group of people to benefit from the purpose (children) and the purpose itself is sufficiently certain.
Option B is wrong because the wording of the trust indicates that the trustees can spend the capital on the purpose and the trust is only to last as long as the law allows. Therefore, it will not offend the rule against inalienability.
Option C is wrong because although the trust will not succeed as a charitable purpose trust because it lacks public benefit (there is a personal nexus of employment between the people benefiting from the purpose, Oppenheim v Tobacco Securities Trust), the trust could be valid as a non-charitable purpose trust (Re Denley).
Option E is wrong because although the advancement of education is a charitable purpose within the Charities Act 2011, this provision will not be valid as a charitable purpose trust. However, it will be valid as a non-charitable purpose trust, given the tangible nature of the educational benefit to the children.
A company’s main supplier threatened to cease trading with the company because it had experienced delays in payment. The father of one of the directors of the company lent the company £50,000 specifically to pay the supplier. This money was paid into the company’s general account at the bank. The company went into liquidation before the money was spent.
Which of the following best explains whether the director’s father might be able to recover the £50,000?
He will be unable to recover the £50,000 because he is merely an unsecured creditor of the company.
He will be unable to recover the £50,000 because the company’s liquidator will be able to claim the money in priority.
He will be unable to recover the £50,000 because it was paid into the company’s general account at the bank.
He may be able to recover the £50,000 because the money was loaned to the company for a specific purpose which can no longer be achieved.
He may be able to recover the £50,000 because he is connected to a director of the company.
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Well done. Option D is the correct answer. The father could argue that he created a Quistclose trust as the money was lent for an exclusive purpose which can no longer be achieved because of the company’s liquidation. In Barclays Bank v Quistclose, money was lent for the sole purpose of paying dividends to shareholders. It was held that the money had been lent on trust for this purpose and, when the purpose could not be carried out, due to the borrower’s insolvency, the money should be held on a resulting trust and returned to the lender.
Options A and B are wrong because while the father will rank as an ordinary unsecured creditor on the company’s liquidation, if he can establish that the company held the loan money on trust for him, he could recover the £50,000 in full, ahead of the other creditors. As the company would then be holding the money as a trustee, it would not be available to the liquidator.
Option C is wrong because while paying the loan into a separate bank account (as in Quistclose) could suggest that a trust was intended, not doing so is not necessarily fatal to the father being able to establish the trust (Twinsectra).
Option E is wrong because the father’s relationship to a director of the insolvent company is not going to impact on his ability to recover the loan.
