Trust Objects Flashcards
Why do we need a human beneficiary?
We need someone who can monitor performance of the trust and come to court if trustees acting improperly
Trustees must also know who they are working to benefit
Exception 1:
Trusts for charitable purposes are not void as they are for the benefit of society (Bowman v Secular Society)
Exception 2
Limited number of anomalous exceptions permitted for historical reasons - private purpose trusts - not to be expanded
Morice v Bishop of Durham
Every other trust [which is not charitable] must have a definite object. There must be somebody in whose favour the court can decree performance.
Why do we object to purpose trusts?
Enforcement - Difficult for someone to come to court and request relief.
Alienation - Tying up property indefinitely
Certainty - Definitions of purposes can be broad - how can we ensure that the trustees achieve the purpose and don’t deviate?
Capriciousness? These trusts may be silly or unusual. They should use their own money and time to do this and not waste the court’s time in creating a trust and having courts have to enforce it.
Out of date? Current position - we still have the historical anomalies even though the courts clearly don’t want to expand them, yet they still exist in CL and the old perpetuity rule still applies to them.
Tax? How do we know who is entitled to the property (and liable for tax) if it doesn’t vest in anyone?
Arguments in favour of purpose trusts?
Settlor/owner autonomy - Allows them to do more with their property and their assets - why should the law restrict you from applying money for a purpose you want to be achieved? Possible counter is that you can do that, you just can’t use a trust to do so.
Advancing good - If someone is trying to benefit society, why not let them?
Not doing bad things? Of course if someone has a purpose trust to support a terrorist cause that is something else.
Avoiding selectivity? Why are we preferential to exceptions which were recognised 80+ years ago?
Role of an enforcer potentially to enforce these trusts?
Charities Act s1
(1) Charity is an institution which is established for charitable purposes only, and
falls to be subject to the control of the High court
Charities Act s2
(2)(1) Charitable purpose is one which falls under s3(1) and is for the public benefit (see s4)
CA s3
(3)(1) List of purposes eg relief of poverty, advancement of education etc + some additions.
(3)(2)(a) religion includes a religion which involves belief in more than one god and religions which do not involve belief in a god.
(b) health includes prevention or relief of sickness, disease or human suffering
etc
s3(3) Law prior to 2006/11 Acts is still relevant - meanings carry over except as modified by the Acts.
Public Benefit requirement
Even if fits into s3, still needs to meet s4
A purpose falling within 3(1) must be for the public benefit if it is to be a charitable purpose.
No presumption of being for public benefit, old law applies.
Charity Commission Guidance
Two aspects of public benefit.
- The nature of the purpose itself must be such as to be a benefit to the community.
- Those who may benefit from the carrying out of the purpose must be sufficiently numerous, and a ‘section of the public’.
Nuffield v Merton LBC
Nuffield Health is a gym, very expensive one. They argued it was charitable, MC argued it was not.
The amount they charged was argued to be too much, so it excluded too many people and so it wasn’t a section of the public.
Held: Nuffield Health effectively fulfils its charitable purposes for the rich but not the poor. But the rich are as much of a section of the public as are the poor. The poor are not excluded from benefit, and the rich are a sufficient section of the public - hence Nuffield are charitable.
Commission Guidance as to the benefit aspect of public benefit
A purpose must be beneficial, and any detriment must not outweigh the benefit
Commission Guidance on the public aspect of public benefit
Must:
Benefit the public in general, or a sufficient section of the public.
And not give rise to more than incidental personal benefit.
Personal Nexus rule
Those who benefit must not be linked by connection ie family, common employer etc. That is not a sufficient section of the public.
Exception to personal nexus rule: If it is for the public benefit to relieve poverty (Dingle v Turner)
Eg if I make a charitable trust for poor employees of X company who are handicapped.
However, it must still be for a class of people, they cannot be named individuals.
Private Purpose Trusts: Re Endacott
Residue to the Council for the purpose of providing a useful memorial to myself.
Held: We do not add to the list.
Existing exceptions under non-charitable purposes:
Maintenance of tombs and graves - Re Hooper
Maintenance of Animals - Pettingall v Pettingall
Re Denley exception
Re Denley
Recreation ground left for the use of certain employees, to keep a sporting ground going.
Held: Where the trust, though expressed as a purpose, is directly or indirectly for the benefit of an individual or individuals, it is outside the mischief of the beneficiary principle.
So it is a limited exception where we can identify a group of people who would benefit from the trust being carried out.
Arguably arbitrary? You can almost always find people who will benefit from many trusts being carried out. Nonetheless it is the law.
Perpetuity
CL rule: Trust void if it is possible for a person to acquire vested interest outside the perpetuity period of a life in being + 21 years.
Perpetuities and Accumulations Act 2009 - Perpetuity Period is 125 years.
S18 - The act does not affect non-charitable purpose trusts, they still extend to a life in being + 21 years, and since they aren’t for a person, it is essentially just 21 years.
Hayton article
Argues that the reason we have the beneficiary principle and the rule on no non-charitable purpose trusts is to ensure someone can enforce the trust.
There is no reason why a non-charitable purpose trust should not be allowed to exist, where an enforcer is nominated by the settlor to ensure that the trust is properly managed. So long as they are administratively workable and restricted to a valid perpetuity period.
McBride Article
3 arguments against non-charitable purpose trusts, even with an enforcer.
- Capriciouness argument - risks valuable property being tied up for purposes which are entirely capricious and pointless
- Economic argument - Ties up property potentially indefinitely, and prevents the free market from distributing property to those who are willing to pay for it, by requiring that the property be used only for a particular purpose. There are other purposes which might be much more beneficial. The current approach is good because before courts will allow property to be tied up for a particular purpose, they make sure it is for the public benefit ffirst,
- Tax evasion - Commonly used as a vehicle to evade taxes - since there are no beneficiaries, they aren’t taxed on income, and disbursements will be gifts from the trust fund so aren’t taxed on receipt.
