Purpose Trusts Flashcards
Benefits of charitable status
There are a number of key benefits to trusts having charitable status. These include:
(a) No requirement to comply with the beneficiary principle
(b) More flexible rules on certainty of objects (ie certainty of purpose)
(c) No limit on their duration (ie they can exist in perpetuity)
(d) 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
(e) Tax benefits: These are outside the scope of the module but are a major practical advantage
to having charitable status.
Key differences between charitable and non-charitable purpose trusts
It is also important to be aware of the following differences between the two categories of purpose
trust:
(a) Enforceability: As we have already seen, charitable purpose trusts are legally enforceable
while non-charitable purpose trusts are ‘trusts of imperfect obligation’.
(b) Certainty of objects (ie certainty of purpose): Charitable purpose trusts benefit from relaxed
rules of certainty of purpose.
(c) Perpetuity: Charitable purpose trusts can last indefinitely while non-charitable purpose
trusts are restricted in duration by the common law perpetuity rules (discussed in the chapter
on ‘Perpetuity’).
Perpetuity
In general terms the law prevents people from tying up their assets on trust in perpetuity
(indefinitely). This is for policy reasons – it prevents people with wealth locking their assets away
on trust and therefore out of circulation in the wider economy. If they were able to lock assets
away on trust in this way, they could effectively control their assets for many generations into the
future from beyond the grave.
There are two related rules in this area:
(a) The rule against remoteness of vesting: This applies to trusts with beneficiaries or charitable
purposes as their objects.
(b) The rule against inalienability: This only applies to non-charitable purpose trusts.
2 Certainty of purpose
The rules in relation to certainty are much more flexible for charitable purpose trusts than for
private trusts:
* 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.
This is not true of non-charitable purpose trusts. Such trusts will be void for uncertainty of objects
if the purpose (or means of achieving the purpose) is unclear.
Charitable purpose trusts
(a) Be for a charitable purpose;
(b) Satisfy the public benefit test; and
(c) Be wholly and exclusively charitable.
Heads of charity
The 12 specific heads of charity are:
(a) The prevention or relief of poverty
(b) The advancement of education
(c) The advancement of religion
(d) The advancement of health or the saving of lives
(e) The advancement of citizenship or community development
(f) The advancement of the arts, culture, heritage or science
(g) The advancement of amateur sport
6: Purpose trusts 65
(h) The advancement of human rights, conflict resolution or reconciliation or the promotion of
religious or racial harmony or equality and diversity
(i) The advancement of environmental protection or improvement
(j) The relief of those in need because of youth, age, ill-health, disability, financial hardship or
other disadvantage
(k) The advancement of animal welfare
(l) 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
General purpose
There is also a wide, additional category in s 3(1)(m) which recognises that some charitable
purposes may not have been captured within the previous 12 heads of charity.
This provision covers purposes which would have been recognised as charitable under the
previous law, or purposes which are analogous to or within the spirit of the statutory heads of
charity and earlier case law.
This principle of recognising charitable purposes by analogy is a long-standing principle of
charity law. It ensures that the law on charitable purposes is flexible and can evolve to include
additional purposes that were not specifically envisaged when the Act was drafted but
nonetheless merit charitable status.
Wholly and exclusively charitable
For a trust to have charitable status, its purposes must be wholly and exclusively charitable. In
other words, all its purposes must be charitable.
If a trust has a mixture of charitable and non-charitable purposes, the consequences depend on
the precise situation:
(a) 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.
(b) 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).
(c) 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).
Public benefit
There is no definition of ‘public benefit’ in the Act, but it does provide that:
* There is no presumption of public benefit (s 4(2))
* Charity trustees must have regard to any guidance published by the Charity Commission in
pursuance of its public benefit objective (s 17(5))
There are two elements to the public benefit requirement:
(a) Whether there is an identifiable benefit; and
(b) What constitutes the public, or a section of the public.
Identifiable benefit
The question of whether there is an identifiable benefit is a separate question from whether the
trust is for a charitable purpose as a matter of law. It is a question of fact as to whether there is a
benefit to the public having regard to all the evidence in the particular case. The settlor’s belief as
to benefit is not relevant.
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.
* Re Hummeltenberg: A benefit could not be identified in relation to a training college for
mediums notwithstanding the settlor’s belief that it was beneficial.
* National Anti-Vivisection Society v IRC: The adverse effect on medical research outweighed the
benefit arising to the welfare of animals of abolishing vivisection
Public or section of the public
The purpose must be beneficial to the public or section of the public, not to a private class of
individuals. This is for policy reasons: a settlor should not benefit from the advantages of
charitable status in respect of a trust which in fact benefits only eg the settlor’s family and
friends.
To satisfy the test:
(a) The possible beneficiaries must not be negligible in number; and
(b) 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).
It is not simply a question of numbers. In Oppenheim a trust for the education of children of the
employees of a company which employed over 100,000 staff was held not to be charitable on the
basis that the beneficiaries were defined by reference to their personal relationship with the
employer.
Charity Commission guidance provides that charities can choose to focus on certain beneficiaries
provided that:
6: Purpose trusts 71
(a) They have proper reasons for doing so
(b) The poor are not excluded from benefit
(c) 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.
In IRC v Baddeley Viscount Simonds gave an analogy: a bridge may be charitable and it does not
matter how many people actually use it. But confine its use to a selected number of persons,
however numerous or important, and it is not charitable.
Charities can charge for the services or facilities they offer. They can even make a profit provided
this is reasonable and necessary to carry out the charity’s aims eg used to fund the facilities
provided by a private school or hospital.
The opportunity to benefit must not be unreasonably restricted. For example if fees restrict the
benefit to only those who can afford the fees it may be that the benefits are not available to a
sufficiently large section of the public.
If charges are of a level which the poor cannot afford, the trustees must make sure that the poor
can otherwise benefit. This is always a matter of degree and will be considered further in the
context of the advancement of education.
Political objectives
Charities cannot pursue political objectives ie seek to change the law or government policy or
promote the views of a political party. This is on the basis that the courts/Charity Commission are
unwilling to consider whether such a purpose is for the public benefit, preferring to be politically
neutral.
A distinction can be drawn between a political purpose (which will not be charitable on public
benefit grounds) and the use of political means to achieve a non-political objective (which can be
charitable). This distinction may be very difficult to draw in practice, as illustrated by the
examples below.
A trust set up by Amnesty International included the objective (among others) of securing the
release of prisoners of conscience by procuring the reversal of government policy (McGovern v
Attorney General). This was held to be non-charitable.
An organisation set up to protect the environment carries out a range of activities including
political activity aimed at changing government policy in relation to airports (Charity Commission
Guidance). This was held to be charitable
Application of public benefit test to specific charitable purposes
The prevention or relief of poverty
The requirement that the class of beneficiaries must not be defined by reference to their
relationship with a single person is relaxed in the case of the relief or prevention of poverty.
However, the purpose must still be for the benefit of a particular description of poor persons, as
opposed to the benefit of particular poor persons (which would be a private trust).
In Re Scarisbrick’s Will Trusts it was considered that trusts for ‘poor relations’ are ‘of so altruistic a
character’ that the public element may be inferred, or they can otherwise be accepted as being a
‘hallowed, if illogical, exception’.
The benefit is easily established for a purpose to relieve poverty, and the relaxation of the ‘public’
element means that trusts for such purposes can have pools of beneficiaries where there is a
family or other personal connection to the settlor (such as to an employer in Dingle v Turner), or
72 Trusts Law
restricted to a smaller geographical area where this would not be allowed for other charitable
purposes.
2.5.2 Advancement of education
Fee-paying schools have been an issue of particular difficulty in relation to the public benefit
requirement. As noted above, charities can charge fees but must not by doing so exclude the poor
from benefitting from the charitable purpose. Both elements of the public benefit requirement
were considered in The Independent Schools Council v The Charity Commission:
* Identifiable benefit: The benefit of providing education was not outweighed by the social
mobility implications of the requirement to pay fees.
* Section of the public: Although the accessibility of the benefit can be restricted by a
requirement to pay fees, if fees are of a level which the poor cannot afford the trustees must
make provision so that the poor can otherwise benefit. This benefit must be more than a de
minimis or ‘token’ benefit. However, once that hurdle is met it is for the trustees to determine
how this requirement might be met in the particular circumstances. Examples suggested
included the provision of scholarships or making teaching materials or other facilities (such as
swimming pools or sports grounds) available.
2.5.3 Advancement of religion
Before the Charities Act 2006 there was a presumption that charitable trusts for the advancement
of religion were for the public benefit. Now the presumption has been abolished the public benefit
must be proven in each case.
No public benefit could be proved in respect of a gift on trust to a community of cloistered nuns.
The efficacy of prayer in itself could not be proved. It would have been different if the nuns had
gone out to benefit the community (Gilmour v Coats).
In contrast, land held by the Catford Synagogue was found to be held for charitable purposes.
The key difference was that the court considered that a benefit to the public derived from mixing
with others in a place of worship, in contrast with the nuns who lived in seclusion (Neville Estates v
Madden).
2.5.4 Advancement of human rights
A key difficulty in relation to intended charitable trusts for the advancement of human rights is
distinguishing between trusts with political objectives (which would not meet the public benefit
requirement) and those which are pursuing a political activity as a means of achieving a
charitable end (which can satisfy the requirement).
For example, a trust by Amnesty International has been held not to be charitable because its
objectives included securing the release of prisoners of conscience and the abolition of torture
and inhuman or degrading treatment. The court did not consider that it could judge whether
procuring a change of law in a foreign country would be to the public benefit in the UK. (Other
objectives of the trust were charitable, but the trust could not be charitable as it was not wholly
and exclusively charitable.)
The cy-près doctrine
Where a private trust fails there is usually a resulting trust to the settlor.
Where a charitable purpose trust fails, however, a resulting trust would defeat the intention of the
person who had dedicated their property to a charitable purpose.
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.
A person who donates property to a charitable purpose therefore knows that it will be used for
charitable purposes, even if the particular purpose fails.
Under s 62 of the Charities Act 2011 there are five grounds on which the original purpose of a
charitable gift can be altered:
(a) The original purpose has been fulfilled or cannot be carried out.
6: Purpose trusts 73
(b) The original purpose may still be workable but does not provide a use for all the property
available to the trust ie there are surplus funds.
(c) The property from similar trusts is combined so as to be used more effectively.
(d) The original purpose referred to an area or class of persons which is no longer relevant or
suitable.
(e) The purpose has:
(i) Been adequately provided for by other means;
(ii) Ceased to be charitable in law; or
(iii) Ceased to provide a suitable and effective method of using the property.
Once property has been given to charity it is given for all time, so where there is a subsequent
failure the gift cannot go back on a resulting trust, it will be applied cy-près.
However, where there is an initial failure ie property cannot be applied to the specific purpose
from the beginning, it will only be applied cy-près if the settlor has shown a general charitable
intention.
The question for the court to decide in construing the document is whether there was a specific
intention to benefit a particular object, or an intention to give effect to a general mode of charity
(notwithstanding a reference to a more specific object). Only in the latter case can the property
be applied cy-près on the failure of the initial purpose.
A gift expressed as being dedicated to a charitable purpose but which fails to specify the mode of
application would show general charitable intent eg ‘£5,000 for the relief of poverty’.
The Endacott exceptions
In order to be valid, the purpose of a non-charitable purpose trust must fall within a recognised
exception to the beneficiary principle.
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:
(a) Trusts for the maintenance of particular animals
(b) Trusts for the erection and maintenance of monuments and graves
(c) Trusts for the saying of private masses
Note that there are a few further miscellaneous exceptions, the continuing validity of which is
doubtful. The court also classified gifts to unincorporated associations as a further exception, but
there is a separate body of case law dealing with such gifts. This Workbook focuses only on the
three exceptions recognised above.
