Purpose Trusts Flashcards
What is the beneficiary principle?
As a general rule, a trust must have a beneficiary.
- The beneficiary is the person who is able to hold the trustee to account.
- Without someone who has the ability to take the trustee to court if they do not perform their obligations, the obligation component of the trust is meaningless.
- If there is no enforceable obligation, the trustee can effectively do whatever they want with the property, effectively making them the absolute owner of that property.
- This is incompatible with the notion of a trust.
(There are some limited exceptions to the beneficiary principle, the most obvious being charitable trusts, which have charitable purposes as their objects and can be enforced by the Charity Commission.)
What are the exceptions to the beneficiary principle?
- Charitable purpose trusts: recognised despite the absence os ascertainable beneficiaries because they are for the public benefit.
- Non-charitable purpose trust: recognised as valid in specific exceptional cases “Endacott” exceptions.
Why are charitable purpose trusts not void?
They are not void for infringement of the beneficiary principle because there is a mechanism for their enforcement.
Enforceable by the Attorney-General with practical responsibility for enforcement lying with the Charity Commission.
Note: “Charity” is a status.
What are the requirements for charitable purpose trusts?
Trust must:
- Be for a charitable purpose
- Satisfy a public benefit test
- Be wholly and exclusively charitable
What are the benefits of charitable status?
There are a number of key benefits:
- No requirement to comply with the beneficiary principle
- More flexible rules on certainty of objects (certainty of purpose)
- No limit on their duration (can exist in perpetuity)
- A rule known as the cy-pres doctrine which allows the trust property to be applied for other charitable purposes even if the specific trust fails
- Tax benefits
What is the rule against remoteness of vesting?
The statutory rule against remoteness of vesting applies to charitable trusts. However if well managed, the charitable purpose trust can exist indefinitely.
What is the rule against inalienability?
Perpetuity rule applicable to non-charitable purpose trusts. Rule provides that assets cannot be tied up on trust for longer than the common law perpetuity period of a life in being plus 21 years (or just 21 years if no life specified).
Stricter than statutory rule. No ‘wait and see’ rule. Means that it must be clear from the outset that the trust must end within the prescribed perpetuity period.
What are the rule for certainty of purpose for non-charitable purpose trusts?
Trusts will be void for uncertainty of objects if the purpose or means of achieving the purpose is unclear.
What are the rule for certainty of purpose for charitable purpose trusts?
More flexible 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
- 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.
What is the effect of a non-charitable purpose trust having an uncertain purpose?
Trust is likely to be void.
What is the requirement (level) for certainty in a non-charitable purpose trust?
Equity does not recognise trusts that it cannot enforce or control. A purpose must therefore be sufficiently certain that it is possible for the court to carry out the purpose.
What are charitable purpose?
A purpose which:
a) falls within one of the 12 heads of section 3(1) of the Charities Act 2011; and
b) is for the public benefit.
- Prevention or relief of poverty
- Advancement of education
- Advancement of religion
- Advancement of health/saving lives
- Citizenship/community development
- Arts, culture, heritage or science
- Advancement of amateur sport
- Advancement of human rights
- Environmental protection
- Relief of those in need
- Animal welfare
- Efficiency of public services
- Prevention or relief of poverty
No definition of poverty
- Does not mean destitute (degrees of poverty)
- Means “going short” - relief of anyone who does not have resources to provide themselves with the normal things of life which most people take for granted
- Will likely be judged against a person’s status in life.
- Must not benefit the rich
- Can be inferred
- Poverty can be temporary
- Advancement of education
Not confined to formal instruction in an educational institution and could include training, research or broader education in the development of individual capabilities, competencies, skills and understanding.
eg:
- scholarships
- funding lectureships
- student union
- dissemination of knowledge - Council of Law Reporting
- museums, galleries, libraries, scientific institutes
- pre-schools, playgroups, summer schools, homework clubs
- organisations supporting the work of educational establishments (PTA, teacher training, exam boards)
- DofE, Scouts and Guides
- Advancement of religion
Religion includes belief in more than one god and a religion which does not involve a belief in a god.
- Must meet requirements for religion
- Must also positively advance the religion “promote it, spread its message, take some positive steps to sustain and increase religious belief”
Can be achieved by way of religious services, pastoral or missionary work.
- support of religious order such as a convent
- public masses celebrating the dead
- repair to churchyards or burial grounds
- Advancement of health/saving of lives
Includes prevention or relief of sickness, disease or human suffering as well as the promotion of health.
Broad view, incudes alternative and holistic methods.
Include hospitals or healthcare advice.
Saving of lives includes rescue services such as lifeboat associations, mountain rescue and cave rescue.
- Citizenship/Community development
Includes: rural and urban regeneration; the promotion of civic responsibility, volunteering, the voluntary sector or the effectiveness or efficiency of charities.
- Covers a broad group of charitable purposes directed towards support for social and community infrastructure which is focused on the community rather than the individual (as long as wholly and exclusively charitable).
- Arts, culture, heritage or science
Charitable art needs to be of merit - may need outside expert. CoA found collection of art to be junk and trust was not charitable.
Monuments can be charitable if they are of cultural or historical importance. Monuments to private individuals are unlikely to be charitable (but maybe non-charitable purpose trust).
Heritage - preservation of historic land and buildings, may also include activities concerned with preserving or maintaining a tradition.
- Advancement of amateur sport
- Sport: sports or games which promote health by involving physical or mental skill or exertion
- Some uncertainty as to definition - includes chess and bridge but not target shooting
- Advancement of human rights
- advancement of human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity
- Must not be political i.e. seeking to procure changes to the law
- Environmental protection
- Both protection and improvement of the environment: includes advancement of environmental protection and improvement includes preservation and conservation and promotion of sustainable development
- land and conservation of wildlife including particular animals
- may need to produce independent expert evidence
- Relief of those in need
- because of youth, age, ill-health, disability, financial hardship or other disadvantage. Includes relief given by the provision of accommodation or care.
- does not need to be poor to have need, but must show they have a specific need
- Advancement of animal welfare
- Both specific animals and animals generally
- Included improving methods of slaughter
- Efficiency of public services
- Relates to the efficiency of armed forces, police, fire and rescue or ambulance.
- provision of library or fitness for regiment
- increasing technical knowledge of members of services
- opportunities to gain additional experience
General charitable purpose
- Wide category which recognises some charities may not fall within the 12 heads
- purposes would have been recognised as charitable under the common law
- purposes within the spirit of the statutory heads of charity and earlier case law
What is meant by wholly and exclusively charitable?
To have charitable status its purposes must be wholly and exclusively charitable.
If has a mixture of charitable and non-charitable purposes, consequences depend on:
- As a basic rule, the trust will be void unless 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 resulting trust.
- If the non-charitable purpose can be construed as ‘incidental or subsidiary’ to the main, charitable purpose, the trust will remain effective.
- If the charitable and non-charitable purposes can be separated, and a portion of the fun 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 - this requires amount allocated to each purpose to be quantifiable.
What are the elements of the public benefit requirement?
Two elements:
1. whether there is an identifiable benefit; and
2. what constitutes the public, or a section of the public
What is an identifiable benefit?
- question of fact as to whether there is a benefit to the public having regard to all the evidence in the particular case (settlor’s belief is not relevant)
- Benefit is balanced against any detriment of harm arising from purpose
What is the public or section of the public test for charitable trusts?
(i) the possible beneficiaries must not be negligible in number; and
(ii) 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
- Not simply a question of numbers (e.g. a trust for the benefit of education of children of employees was held not to be charitable on the basis that the beneficiaries were defined by reference to their personal relationship to the employer)
Charities can choose to focus on certain beneficiaries provided that:
(i) they have proper reasons for doing so
(ii) the poor are not excluded from benefit
(iii) the people focuses 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
Can charities be political?
No. Charities cannot pursue political objectives i.e. seek to change the law or government policy or promote the views of the political party - courts will refuse to consider this.
A distinction can be drawn between a political purpose and the use of political means to achieve a non-political objective (which can be charitable). Difficult to distinguish.
Public benefit and charitable heads
- you can have charitable trusts for poor relations
- private schools can be charitable (making facilities available or providing scholarships)
- religion - must be some public benefit i.e. trust for cloistered nuns was not held to be for public benefit
- human rights: tricky b/c/ politics, trust for amnesty was not found to be political - release of prisoners abroad can not be judged to be of public benefit to the UK.
What happens when a private trust fails?
There is usually a resulting trust to the settlor.
What is the cy-pres doctrine?
Where a charitable purpose trust fails, any surplus funds will be applied to another charitable purpose by way to a scheme established by the Charity Commission or court.
Once a property has been given to charity it is given for all time so where there is subsequent failure the gift cannot go back on resulting trust.
Where there is initial failure, only applied cy-pres if the settlor has shown a general charitable intention. specific intention to benefit a particular object or give effect to general mode of charity.
What are the five grounds on which the original purpose of a charitable gift can be altered?
- 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 of class of persons which is no longer relevant or suitable
- The purpose has:
a) been adequately provided for by other means
b) ceased to be charitable in law; or
c) ceased to provide a suitable and effective method of using the property
What are the Endacott exceptions?
- Trusts for the maintenance of particular animals
- Trusts for the erection and maintenance of monuments and graves
- Trusts for the saying of private masses
Only apply when a trust is created in a will.
What is a Pettingall order?
Requires the trustee to give an undertaking to comply with the purpose trust. (if willing to carry out terms of the trust)
If they do not, the testator’s residuary legatees can sue to enforce the undertaking and prevent misapplication of the fund.
Who enforces a non-charitable purpose trust?
Trustee will be subject to a Pettingall Order by the court which requires them to give an undertaking to comply with the purpose trust.
If they do not, the testator’s residuary legatees can sue to enforce the undertaking and prevent misapplication of the fund.
What is the perpetuity period for a non-charitable purpose trust?
Rule against inalienability applies to non-charitable purpose trusts. Trust comes to an end with the common law period of 21 years which can be extended by a human life in being.
MUST be certain at the time the trust is created that it will come to an end within the perpetuity period, otherwise the trust will be void. “wait and see” rule does not apply.
- trust to maintain animal for the rest of its life will be void. Best to include an express perpetuity period.
What is required to be a valid non-charitable purpose trust?
- Fall within an Endacott exception
- Be sufficiently certain
- Comply with perpetuity rules
