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