Purpose Trusts: Charitable trusts

Question 1

What are the requirements to have a charitable trust?

Answer 1

1. Be for a charitable purpose;
2. Satisfy the public benefit test; and
3. Be wholly and exclusively charitable.

Question 1

1st requirement: A charitable purpose?

Answer 1

purpose which:

a) falls within the 12 specific heads of charity are set out AND

b) is for the public benefit.

Question 2

2nd requirement: Public benefit?

Answer 2

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.

Question 3

What is an identifiable benefit?

Answer 3

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 4

What do we mean by public or section of the public?

Answer 4

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

Question 5

Can charities choose to focus on certain beneficiaries?

Answer 5

Yes, provided that..
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.

Question 6

Why must we consider political objectives?

Answer 6

The courts / Charity Commission are unwilling to consider whether such a purpose is for the public benefit, preferring to be politically neutral.

Question 7

3rd requirement: Wholly and exclusively charitable?

Answer 7

If a trust has a mixture of charitable and non-charitable purposes:

1. The trust will be void unless the non-charitable purpose falls within a recognised category of non-charitable purpose trusts.
2. If the non-charitable purpose can be construed as ‘incidental or subsidiary’ to the
   main, charitable purpose, the trust will remain effective.
3. 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 and the amount allocated to each purpose to be quantifiable.

Question 8

What is the cy-pres doctrine?

Answer 8

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.

It will only be applied cyprès if the settlor has shown a general charitable intention.

Question 9

What are five grounds on which the cy-pres doctrine can be used?

Answer 9

a) The original purpose has been fulfilled or cannot be carried out.

b) 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.

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