Purpose Trusts Flashcards
Certainty of objects
‘Every…trust must have a definite object. There must be somebody, in whose favour the Court can decree performance.’ (Morice v Bishop of Durham, Sir William Grant MR)
Exceptions to the beneficiary principle
(1) Charitable purpose trusts
(2) Non-charitable purpose trusts in specific, exceptional cases, known as the Endacott exceptions
- There is also a further class of trusts which appear to be for a purpose, but in fact indirectly benefit identifiable individuals. These are known as Denley trusts
Charitable purpose trusts
Charitable purpose trusts are not void for infringement of the beneficiary principle because there is a mechanism for their enforcement. They are enforceable by the Attorney General, with practical responsibility for their enforcement lying with the Charity Commission.
Benefits of trusts having charitable status
- 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
Requirements for charitable purpose trusts
To have charitable status a trust must:
(a) Be for a charitable purpose
(b) Satisfy a public benefit test
(c) Be wholly and exclusively charitable
Non-charitable trusts - 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.
- Only very limited types of trust fall within this category and it is a closed class which is narrowly construed. No further exceptions are likely to be recognised.
- There is no recognised method of enforcement for non-charitable purpose trusts. They are therefore known as ‘trusts of imperfect obligation.’
Denley trusts
- It was recognised in the case of Re Denley’s Trust Deed that a trust which appears to be for a purpose can nonetheless be recognised as a valid trust within the spirit of the beneficiary principle provided that:
(a) it is directly or indirectly for the benefit of individuals such that they have standing to enforce the trust in court
(b) the individuals are ascertained or capable of being ascertained
(c) the duration of the trust is limited to a valid perpetuity period
Perpetuity
- In general terms, the law prevents people from tying up their assets on trust in perpetuity
- This is for policy reasons; it prevents people with wealth locking their assets away on trust and out of circulation in the wider economy.
- There are two related rules in this area:
(1) The rule against remoteness of vesting
(2) The rule against inalienability
The rule against remoteness of vesting
- The statutory rule against remoteness of vesting applies to charitable trusts.
- Just as the property held on a private express trust must vest in beneficiaries within 125 years, property held on a charitable trust must vest in the charity within that period.
- The practical difference is that a trust with beneficiaries will be extinguished when the capital is distributed to the beneficiaries. In contrast, capital which vests in charity trustees will continue to be held by the trustees and used for the purposes until the property runs out.
- If the trust fund is well-managed, the property may never run out so the trust will continue to subsist unless the purposes fail. This means that charitable purpose trusts can exist indefinitely.
The rule against inalienability
- The pereptuity rule applicable to non-charitable purpose trusts is the common law rule against inalienability.
- This 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 in being is specified)
- The common law rule is stricter than the statutory rule. There is no ‘wait and see’ rule. It must be clear from the outset that the trust must end within the prescribed perpetuity period.
- The common law rule does not apply to charitable purpose trusts.
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 for non-charitable purpose trusts or Denley trusts. Such trusts will be void for uncertainty of objects if the purpose, or means of achieving the purpose, is unclear.
Re Astor’s Settlement Trusts - an attempted non-charitable purpose trust found to be void because of uncertain intended purposes
A trust of substantially all the shares in The Observer were held on trust for various non-charitable purposes including:
- ‘The maintenance…of good understanding, sympathy and co-operation between nations’
- ‘The control, publication…financing or management of any newspapers, periodicals, books, pamphlets or publications’
- ‘The protection of newspapers…from being absorbed…or being tied by finance or otherwise to special…views…inconsistent with the highest integrity and independence.’
- Roxburgh J: ‘The purposes must be so defined that if the trustees surrendered their discretion, the court could carry out the purposes declared’
- He considered these purposes too inherently uncertain to be performed: ‘how in any case could I decree in what manner the trusts applicable to income were to be performed? The settlement gives no guidance at all.’
- Counsel’s argument that the trustees could apply to the court for a ‘scheme’ for the administration of the trust, as is available for charitable trusts, was rejected: ‘It is not, I think, a mere coincidence that no case has been found outside the realm of charity in which the court has yet devised a scheme’ ‘[It would] necessarily require the assistance of a custodian of the public interest analogous to the Attorney-General in charity cases…There is no such person.’
- It did not fall within an Endacott exception so Roxburgh J concluded: ‘a court of equity does not recognise as valid a trust which it cannot both enforce and control. This seems to me to be good equity and good sense.’
Charitable purposes - history
- There is an extensive body of case law on charitable purposes, much of which refers to charitable purposes listed in the preamble to the Charitable Uses Act 1601. The law on charities was codified in the Charities Act 2006 and consolidated in the Charities Act 2011, but the history of the case law is important because many modern cases will still be interpreted by references to cases predating the legislation.
- For around 300 years, the case law on charitable purposes developed with reference to the four traditional ‘heads of charity’ in the 1601 Act:
(1) The relief of poverty
(2) The advancement of education
(3) The advancement of religion
(4) Other purposes beneficial to the community - These were subsequently recognised to be a ‘checklist’ only, with other purposes capable of being charitable as long as they fell into the spirit of this preamble.
Charitable purposes - current position
- The law has been codified, with section 2 of the Charities Act 2011 providing that a charitable purpose is a purpose which:
- falls within section 3(1); and
- is for the public benefit.
- There are 12 specific heads of charity set out under s 3(1) as well a wide additional head of charity which codifies the common law principle of recognising additional charitable purposes falling within the spirit of the law.
s 3(1) - 12 heads of charity
(1) The prevention of relief of poverty
(2) The advancement of education
(3) The advancement of religion
(4) The advancement of health or the saving of lives
(5) The advancement of citizenship or community development
(6) The advancement of the arts, culture, heritage or science
(7) The advancement of amateur sport
(8) The advancement of human rights, conflict resolution or reconciliation or the promotion of religious or racial harmony or equality and diversity
(9) The advancement of environmental protection or improvement
(10) The relief of those in need because of youth, age, ill-health, disability, financial hardship or other disadvantage
(11) The advancement of animal welfare
(12) 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
Head of charity (1) - The prevention or relief of poverty
- no definition of ‘poverty’ in the Charities Act 2011 and it is therefore interpreted using existing case law from which some key principles can be derived:
- (a) Poverty does not mean destitution - ‘There are degrees of poverty less acute than abject poverty or destitution, but poverty nonetheless’ (Re Gardom)
- (b) Poverty means ‘going short’ (Re Coulthurst, and now reflected in Charity Commission guidance which provides that ‘it is likely to be charitable to relieve the poverty or financial hardship of anyone who does not have the resources to provide themselves…with the normal things of like which most people take for granted.’
- (c) Poverty is a relative concept - it is judged against a person’s ‘status in life.’ Trusts have been found to be charitable for ‘distressed gentlefolk’ (Re Young) and ‘ladies of limited means’ (Re Gardom)
- (d) The purpose must not benefit the rich - otherwise it will not be ‘wholly and exclusively charitable’ (Re Gwyon; a trust for the provision of clothing to boys was void in the basis that it did not require the boys to be poor so would benefit rich boys too)
- (e) Poverty can be inferred - The provision of a soup kitchen was implicitly for the alleviation of poverty (Biscoe v Jackson). In contrast, a trust to provide dwellings for the ‘working classes’ was not charitable as ‘working class’ did not indicate poor persons (Re Sanders’ WT)
- (f) Poverty can be temporary - 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.’
Head of charity (2) - The advancement of education
- Charity Commission guidance indicates that the advancement of education is not confined to formal instruction in an educational institution and could include training, research or broader education.
- Scholarships to support students (Re Gott) and funding of lectureships (AG v Margaret and Regius Professors in Cambridge)
- Ancillary organisations in educational institutions e.g. a students’ union, provided it exists to further the educational purposes of the institution (London Hospital Medical College v IRC)
- The dissemination of knowledge e.g. Incorporated Council of Law Reporting for England and Wales, in which a trust for the publication of law reports was considered charitable as it assisted research into the law.
- Sometimes the case law is not entirely consistent:
- Re Shaw: George Bernard Shaw left a gift for the purpose of developing a 40-letter phonetic alphabet. The purpose was held to be an increase in knowledge, but this was not a charitable object because there was no element of teaching/education.
- Re Hopkins’ Will Trust: A gift was left on trust for the purpose of researching whether plays attributed to Shakespeare may have been authored by Francis Bacon. Wilberforce J did not find himself constrained by the requirement of ‘an element of teaching or education’ and held that research must ‘either be of educational value to the researcher or must be so directed as to lead to something which will pass into the store of educational material’
- Both these cases predate the statutory requirement to prove public benefit.
Head of charity (2) - The advancement of education: Charity Commission guidance on organisations that class as charitable under this heading
- 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
- this list is not exhaustive.
Head of charity (3) - The advancement of religion
- s 3(2)(a) Charities Act 2011 provides that ‘religion’ includes:
- a religion which involves belief in more than one god, and
- a religion which does not involve a belief in god.
- Charity Commission guidance consolidates further case law requirements describing a religious belief as:
- belief in a god (or gods) or goddess (or goddesses) or supreme being, or divine or transcendental being or entity of spiritual principle which is the object/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
- earlier case law now needs to be considered in light of the statutory definition and Charity Commission guidance, which provides that it should be considered ‘in the context of current social and economic circumstances.’
Head of charity (3) - The advancement of religion key cases
R v Registrar General of Births, Deaths and Marriages - Supreme Court held that scientology was a religion: ‘religion should not be confined to religions which recognise a supreme deity.’
Under this heading, as well as meeting the definition of ‘religion’, charitable trusts need to also positively ‘advance’ the religion.
Advancement of religion has been defined as meaning ‘to promote it, to spread its message ever wider among mankind; to take some positive steps to sustain and increase religious belief’ (United Grand Lodge of Ancient Free and Accepted Masons of England v Holborn Borough Council)
- This can be achieved by way of religious services, pastoral or missionary work.
- Support of a religious order such as a monastery or convent (Re Banfield)
- Public masses celebrating the dead (Re Hetherington)
- The repair of churchyards of burial grounds (Re Douglas)
Head of charity (4) - The advancement of health/saving lives
- The prevention or relief of sickness, disease or human suffering, the promotion of health.
- 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 (Charity Commission Operational Guidance 304)
- Can include the provision of hospitals (Re Resch’s Will Trust) or healthcare advice (British Pregnancy Advisory Service)
- The saving of lives includes rescue services e..g lifeboat associations, mountain rescue and cave rescue.
Head of charity (5) - Citizenship/Community development
- 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
- 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
- the purpose must be wholly and exclusively charitable; 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