Purpose trusts

Question 1

What are the exceptions to the beneficiary principle?

Answer 1

• Charitable purpose trusts are recognised despite the absence of ascertainable beneficiaries because they are for the public benefit.
• Non-charitable purpose trusts have been recognised as valid in specific, exceptional cases. These are known as the ‘Endacott’ exceptions.

Question 2

What are the benefits of charitable status?

Answer 2

· No requirement to comply with the beneficiary principle
· More flexible rules on certainty of objects (i.e. certainty of purpose)
· No limit on their duration (i.e. they can exist in perpetuity)
· A rule known as the cy-près doctrine which allows the trust property to be applied for other charitable purposes even if the specific trust fails
· Tax benefits: These are outside the scope of the module but are a major practical advantage to having charitable status.

Question 3

What are the requirements for a charitable trust?

Answer 3

To have charitable status a trust must:
Be for a charitable purpose
Satisfy a public benefit test
Be wholly and exclusively charitable

Question 4

What are the rules on certainty of purpose for charitable trusts?

Answer 4

· It is sufficient that there is an intention to apply property for a charitable purpose.
· If there is uncertainty as to how this intention is to be carried out the trustees can direct that the property be applied for such charitable purposes as they select.
· For charitable purpose trusts the court will strive to resolve any uncertainty and hold the trust valid once it has established charitable intent.
· The Charity Commission or the court can provide a “scheme” to specify the charitable purposes the property should be applied to.

Question 5

Which statement best describes the effect of a non-charitable purpose trust having an uncertain purpose?

The trustees can make an application to court for scheme of administration setting out how to administer the trust.

The trust is likely to be void.

The trustees can use their discretion to interpret the purpose as they see fit.

The court will strive to interpret the purpose as being sufficiently certain if it is possible to do so.

The trustees should carry out the elements of the purpose which are certain and disregard elements of the purpose which are uncertain.

Answer 5

The trust is likely to be void.

Question 6

Which statement is correct in relation to the perpetuity requirements applying to non-charitable purpose trusts?

Non-charitable purpose trusts are not subject to perpetuity restrictions provided the purpose falls within a recognised exception to the beneficiary principle.

Non-charitable purpose trusts are subject to the 21-year common law perpetuity period.

Non-charitable purpose trusts are subject to the 125-year common law perpetuity period.

Non-charitable purpose trusts are subject to the 25-year common law perpetuity period.

Non-charitable purpose trusts are subject to the 125-year perpetuity period under the Perpetuities and Accumulations Act 2009.

Answer 6

Non-charitable purpose trusts are subject to the 21-year common law perpetuity period.

Question 7

Which of the following statements best describes the fundamental importance of the requirement for certainty in a non-charitable purpose trust?

The purpose must be so clearly defined that if the trustees surrendered their discretion the court could carry out the purpose.

The purpose must be so clearly defined that the beneficiaries can enforce the trust.

The purpose must be so clearly defined that the beneficiaries can understand the nature of their rights under the trust.

The purpose must be so clearly defined that the trustees can interpret the purpose in a reasonable way.

The purpose must be so clearly defined that the trust can be administered in accordance with the wishes of the testator.

Answer 7

The purpose must be so clearly defined that if the trustees surrendered their discretion the court could carry out the purpose.

Question 8

What is required for a charitable purpose?

Answer 8

· falls within section 3(1); and
· is for the public benefit.

Question 9

What is is s 3(1) for charitable purpose?

Answer 9

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, conflict 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, financial hardship or other disadvantage
The advancement of animal welfare
The promotion of the efficiency of the armed forces of the Crown or of the efficiency of the police, fire and rescue services or ambulance services

Question 10

What does poverty mean for The prevention or relief of poverty?

Answer 10

Poverty means “going short”

The purpose must not benefit the rich: Otherwise it will not be “wholly and exclusively charitable” - see Re Gwyon in which a trust for the provision of clothing to boys was void on the basis that it did not require the boys to be poor and so would benefit rich boys too.
Poverty can be inferred: For example, the provision of a soup kitchen was implicitly for the alleviation of poverty (Biscoe v Jackson). In contrast,, a trust to provides dwellings for the “working classes” was not charitable as “working class” did not indicate poor persons (Re Sanders’ WT).
Poverty can be temporary: The Charity Commission’s decision to grant charitable status to the AITC Foundation which provided relief for those who suffered as a result of the collapse of investment companies noted that “someone suffering a temporary period of financial__hardship due to a sudden change in circumstances might also__be eligible for assistance”.

Question 11

The advancement of education?

Answer 11

The Charity Commission guidance also recognises that a wide range of organisations class as charitable under this heading, including:
* museums, galleries, libraries, scientific institutes
* pre-schools, playgroups, summer schools and homework clubs
* organisations supporting the work of educational establishments such as parent-teacher associations, teacher training organisations or exam boards
* organisations providing life skills training such as the Duke of Edinburgh award schemes, Scouts and Guides

Question 12

The advancement of religion?

Answer 12

“religion” includes:
· a religion which involves belief in more than one god, and
· a religion which does not involve a belief in a god.
Charity Commission guidance consolidates further case law requirements describing a religious belief as follows:
· belief in a god (or gods) or goddess (or goddesses), or supreme being, or divine or transcendental being or entity or spiritual principle (“supreme being or entity”) which is the object or focus of the religion
· a relationship between the believer and the supreme being or entity by showing worship of, reverence for or veneration of the supreme being or entity
· a degree of cogency, cohesion, seriousness and importance
· an identifiable positive, beneficial, moral or ethical framework.

Trusts for the following purposes have also been found to fall within this head:
· Support of a religious order such as a monastery or convent (Re Banfield)
· Public masses celebrating the dead (Re Hetherington)
· The repair of churchyards or burial grounds (Re Douglas)

Question 13

The advancement of health / saving of lives?

Answer 13

The Charity Commission takes a broad view of advancing health including complementary, alternative or holistic methods as well as conventional methods, though to be charitable there must be sufficient evidence for the claimed benefits of the method used (see Charity Commission Operational Guidance (OG) 304).
The relief of the sick has long been considered charitable. It can include, for example, the provision of hospitals (Re Resch’s Will Trust) or healthcare advice (British Pregnancy Advisory Service).
The saving of lives includes rescue services such as lifeboat associations, mountain rescue and cave rescue.

Question 14

Citizenship / Community development?

Answer 14

Section 3(2)(c) provides that this head includes:
· rural and urban regeneration
· the promotion of civic responsibility, volunteering, the voluntary sector or the effectiveness or efficiency of charities.

As always, the purpose must be wholly and exclusively charitable. This was demonstrated in _IRC v Oldham Training and Enterprise Council_where an organisation was held not to be a charity because, in addition to providing vocational training for the unemployed, it also promoted trade, commerce and enterprise and provided advice to new businesses

Question 15

Arts, culture, heritage or science?

Answer 15

Charity Commission guidance provides that to be charitable the art needs to be of “merit”, the assessment of which may require expert evidence.

Monuments can be charitable under this head if they are of cultural or historical importance. Monuments to private individuals are therefore unlikely to be charitable (but may be recognised as a non-charitable purpose trust).

Charity Commission guidance provides that “heritage” might be regarded as part of a country’s local or national history and traditions which are passed down through successive generations. It includes charities for the preservation of historic land and buildings and might also include activities concerned with preserving or maintaining a tradition (where the benefit to the public in preserving it can be shown).

Question 16

The advancement of amateur sport?

Answer 16

Section 3(2)(d) of the Charities Act 2011 defines “sport” as sports or games which promote health by involving physical or mental skill or exertion.

Question 17

The advancement of human rights?

Answer 17

Charity Commission guidance includes in its examples of the sorts of purposes falling within this head:
· raising awareness of human rights issues, relieving the victims and securing the enforcement of human rights laws; and
· the promotion of restorative justice and other forms of conflict resolution or reconciliation.

Question 18

Environmental protection?

Answer 18

Section 3(1)(i) provides that this head includes both the protection and improvement of the environment.

Charities may need to produce independent expert evidence to show that the particular species, land or habitat to be conserved is worthy of conservation.

Question 19

The relief of those in need?

Answer 19

This charitable purpose is for the relief of those in need because of youth, age, ill-health, disability, financial hardship or other disadvantage. Section 3(2) (e) provides that this includes relief given by the provision of accommodation or care.

The relief of those in need is a separate head of charity from the relief of poverty. It is therefore clear that a person does not need to be poor to be in need.

Question 20

The advancement of animal welfare?

Answer 20

The purpose of the advancement of animal welfare includes providing for the welfare of particular types of animal (e.g. cats and kittens in Re Moss) as well as animals generally. It has also included improving methods for slaughtering animals (Re Wedgewood)
Trusts for the care of particular animals (e.g. the testator’s pet dog) are not included, although such trusts might exceptionally be upheld as non-charitable purpose trusts.

Question 21

The efficiency of public services?

Answer 21

Section 3(1)(l) provides that this purpose relates to the efficiency of the armed forces, the police, fire and rescue services or ambulance services.

Case law has upheld a fund for the promotion of physical fitness (Re Gray) and for the provision of a library (Re Good) in respect of an army regiment as charitable.
In addition to the existing case law Charity Commission guidance suggests a series of examples of purposes which would be considered charitable under this head including:
· increasing technical knowledge of members of the services through the provision of educational resources, competitions and prizes;
· providing opportunities for services personnel to gain additional experience relevant to their jobs.

Question 22

Wholly and exclusively charitable?

Answer 22

For a trust to have charitable status, its purposes must be wholly and exclusively charitable. In other words, all its purposes must be charitable.

Question 23

What happens if a trust has a mix of charitable and non-charitable purposes?

Answer 23

· As a basic rule, the trust will be void unless the non-charitable purpose falls within a recognised category of non-charitable purpose trusts. If the trust fails, the property will return to the settlor on a resulting trust.
· If the non-charitable purpose can be construed as ‘incidental or subsidiary’ to the main, charitable purpose, the trust will remain effective (Latimer v IRC).
· If the charitable and non-charitable purposes can be separated, and a portion of the fund allocated to each, the court will ‘sever’ the trust and recognise the charitable part. This will only be possible if the trust language contemplates severance of the fund (Salusbury v Denton). This requires the amount allocated to each purpose to be quantifiable (Re Coxen).

Question 24

True or false: A trust will only be charitable if the purpose of the trust falls strictly within a recognised charitable purpose.

Answer 24

False

There is provision for purposes which are analogous to or within the spirit of the statutory purposes to be charitable.

Question 25

Which of the following would NOT be a charitable purpose?

The care of family pets.

The funding of a mountain rescue service.

The repair and maintenance of a churchyard

The provision of a homework club.

The preservation of an area of outstanding natural beauty.

Answer 25

The care of family pets.

The care of specific animals is not charitable, although the welfare of animals generally is a charitable purpose.

Question 26

A testator intends to create a charitable trust to promote the work of an amateur artist who specialises in minimalistic modern art. Which of the following statements is correct?

The purpose may be charitable if the artist believes it is of artistic merit.

The purpose is charitable.

The purpose is not charitable.

The purpose may be charitable but expert evidence of artistic merit may be required.

The purpose will only be charitable if it can be shown that the art is of educational value.

Answer 26

The purpose may be charitable but expert evidence of artistic merit may be required.

The purpose may fall under the charitable purpose of the advancement of the arts. Charity Commission guidance provides that to be charitable the art needs to be of merit, and the assessment of this may require expert evidence.

Question 27

Is there a presumption of public benefit for charitable trusts?

Answer 27

No

Question 28

What are the requirements for the charitable purpose requirement for charitable trusts?

Answer 28

There are two elements to the public benefit requirement:
* whether there is an identifiable benefit; and
* what constitutes the public, or a section of the public.

Question 29

How is identifiable benefit found?

Answer 29

Benefit is balanced against any detriment or harm arising from the purpose. The benefit must be capable of being identified and described even if it cannot be quantified or measured. If it is not obvious that the purpose is beneficial, the Charity Commission may require evidence.

Question 30

How to satisfy the Public or section of the public test?

Answer 30

To satisfy the test:
* the possible beneficiaries must not be negligible in number; and
* the quality which distinguishes them from other members of the community must be a quality which does not depend on their relationship to a particular individual (Oppenheim v Tobacco Securities Trust Co Ltd).

Question 31

Can charitable trusts focus on certain beneficiaries?

Answer 31

Charity Commission guidance provides that charities can choose to focus on certain beneficiaries provided that:
* they have proper reasons for doing so
* the poor are not excluded from benefit
* the people focused on are a sufficient section of the public for the charity’s purpose. What constitutes a section of the public is therefore related to the purpose of the charity.

Question 32

What happens if a charitable trust fails?

Answer 32

Charitable trusts are therefore subject to the cy-près doctrine.
This provides that where a charitable purpose trust fails any surplus funds will be applied to another charitable purpose by way of a scheme established by the Charity Commission or court.

Question 33

What are the grounds for which the original purpose of a charitable trust can be altered?

Answer 33

The original purpose has been fulfilled or cannot be carried out.
The original purpose may still be workable but does not provide a use for all the property available to the trust i.e. there are surplus funds.
The property from similar trusts is combined so as to be used more effectively.
The original purpose referred to an area or class of persons which is no longer relevant or suitable.
The purpose has:
· been adequately provided for by other means;
· ceased to be charitable in law; or
· ceased to provide a suitable and effective method of using the property.

Question 34

An employer wishes to establish a sports club for its employees.

Is it possible to create a charitable trust for this purpose?

Yes. The advancement of amateur sport is a charitable purpose.

Yes, but only if there are no fees payable by the employees, to ensure that nobody is excluded due to inability to pay.

No. The employees of the company are a private class of individuals meaning the public benefit test would not be satisfied.

No. This is not a charitable purpose.

Yes, but only if the company has a large number of employees meaning that they are treated as a ‘section of the public

Answer 34

No. The employees of the company are a private class of individuals meaning the public benefit test would not be satisfied.

Correct. Although the advancement of amateur sport is a charitable purpose, the public benefit test would not be satisfied here because the class of individuals who can benefit has been limited by reference to a specific person i.e. the employer.

Question 35

A testator has left £10,000 in their will for “the purpose of educating the poor”.

What is the effect of this provision?

The £10,000 is not held on a charitable trust because the purpose is uncertain.

The £10,000 is not held on a charitable trust because the class of potential objects is too wide.

The £10,000 will be held on a charitable trust. The trustees will have discretion as to how to achieve the testator’s intention.

The £10,000 is not held on a charitable trust because the purpose is not charitable.

The £10,000 will be applied cy-pres because the specific purpose is unclear but the testator has shown a general charitable intent

Answer 35

The £10,000 will be applied cy-pres because the specific purpose is unclear but the testator has shown a general charitable intent

The testator has shown a general charitable intent (as both the advancement of education and the relief of poverty are charitable purposes) but as they have failed to specify the method by which this purpose should be achieved, the cy-pres doctrine will apply.

Question 36

What are the e Endacott [1960] Ch 232 exceptions?

Answer 36

These exceptions apply only when a trust is created in a will and were classified in the case of Re Endacott [1960] Ch 232. They are:
* Trusts for the maintenance of particular animals
* Trusts for the erection and maintenance of monuments and graves
* Trusts for the saying of private masses

Question 37

Monuments and graves?

Answer 37

· A trust for the purpose of constructing or maintaining a monument could be charitable if it is of cultural or historical importance.
· However, monuments and graves in respect of private individuals will not be charitable.
· Nonetheless, trusts for the erection and maintenance of monuments and graves have been upheld as valid (provided they comply with certainty and perpetuity requirements).

Question 38

Private masses?

Answer 38

· A trust for the purpose of conducting religious ceremonies may be charitable if it passes the public benefit test.
· However, a ceremony that takes place in private will not pass the public benefit test and will therefore not be charitable.
· Nonetheless, trusts for the saying of private masses have been upheld as valid (provided they comply with certainty and perpetuity requirements).

Question 39

To be valid a non-charitable purpose trust must fall within a recognised exception to the beneficiary principle. What other two requirements must a testator check are satisfied?

Answer 39

That the purpose is sufficiently certain and the trust complies with perpetuity rules.

Question 40

Which of the following is capable of being a valid purpose in relation to a non-charitable testamentary trust?

To maintain the lawn and gardens of my family home.

To look after my pet cat after my death.

To promote the objectives of my local neighbourhood sustainability project.

To fund an annual memorial lecture in my name.

Answer 40

To look after my pet cat after my death.

Looking after animals generally may be a charitable purpose. However, looking after specific animals falls within a recognised Endacott exception to the beneficiary principle such that it is capable of being a valid non-charitable purpose.

Question 41

Question 1
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?
A Yes, because it satisfies the three certainties.
B Yes, because the members of the Rushcliffe swimming club can enforce its terms.\
C No, because the Trustees are holding the money to achieve a purpose, and all purpose
trusts are void.
D No, because the Rushcliffe swimming club is not a charity.
E No, because the trust locks capital away for too long.

Answer 41

Answer
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 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 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 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.

Question 42

Question 2
A woman’s valid 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?
A Clause 3 does not create a valid trust because ‘the young people of Cornwall’ is not
conceptually certain.
B Clause 3 does not create a valid trust because the purposes are not exclusively
charitable.
C 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.
D Clause 3 creates a valid trust because the purposes are charitable, and the benefit
accrues to a sufficiently large section of the public.
E Clause 3 creates a valid trust as there is a clearly ascertainable class of people who
can enforce the trust.

Answer 42

Answer
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
legitimately be 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.

Question 43

Question 3
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?
A Yes, because the purpose is charitable.
B Yes, because there is sufficient public benefit.
C No, because it is not exclusively charitable.
D No, because there is no certainty of subject- matter.
E No, because it fails to satisfy the complete list test.

Answer 43

Answer
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 (eg 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.