Trusts 5

Question 1

In what 3 ways do the rules regarding charitable trusts and express private trusts differ?

Answer 1

• No requirement for certainty of objects/ascertainable human beneficiaries for charitable trusts. * Cy-Pres doctrine applicable to charitable trusts * Rule against perpetuities does not apply to a charitable trust - it may last forever

Question 2

What are the 3 requirements for a charitable trust?

Answer 2

• The purpose must be charitable (within the definition of the Charities Act 2011)* The trust must bestow an identifiable benefit to the public/a section of the public* The purpose must be wholly and exclusively charitable

Question 3

What are the 11 qualifying purposes for a charitable trust under the Charities Act of 2011?

Answer 3

• The prevention or relief of poverty* The advancement of education* The advancement of religion* The advancement of health or the saving of lives* The advancement of citizenship or community development* The advancement of the arts, culture, heritage, or science* The advancement of amateur sport* The advancement of human rights, conflict resolution or reconciliation, or the promotion of religious or racial harmony or equality and diversity* The advancement of environmental protection or improvement* The relief of those in need because of youth, age, ill-health, disability, financial hardship, or other disadvantage* The advancement of animal welfare* 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 and * Other purposes previously recognised as charitable, such as recreational charities, or which fall within the spirit of the purposes listed above or in the old law.

Question 4

What is the ‘public benefit’ test for charitable trusts?

Answer 4

Assuming a trust falls within the definition in the Charities Act 2011, it must appear that the trust will bestow * an identifiable benefit* to the public or a section of the public.

Question 5

What does it mean that a charitable trust must benefit ‘the public or a section of the public’?

Answer 5

The purpose must benefit the public in general, or a sufficient cross-section of the public, such as the inhabitants of a particular area. Example: * a trust for a field for sporting activities to promote the health of a particular town’s inhabitants would certainly be valid* one for a field for one family within the town is not.

Question 6

Can a charitable trust be for the benefit of a group defined by reference to the relationship of the group’s members with a private individual or business?

Answer 6

No, the trust is for a private group and will fail the public interest test (note relief of poverty exception)Example: a trust for the education of the children of the employees of a company will be invalid.

Question 7

What is the exception to the rule that a charitable trust will fail if it is for the benefit of a group defined by reference to the relationship of the group’s members with a private individual or business?

Answer 7

This rule has not traditionally been applied to trusts for the relief of poverty, so long as the individuals who benefit are not named. Example: a trust for the settlor’s “poor relations” has been held charitable.

Question 8

What affect can the payment of fees have on a trust’s charitable status?

Answer 8

A charity which charges fees may fail the public benefit test if only those who can afford to pay the fees can benefit. Example: private schools may get around this by having a significant programme to admit children without paying fees, or if it makes its facilities available to the public

Question 9

Will an incidental benefit to private individuals cause an otherwise valid charitable trust to fail the ‘public benefit’ test

Answer 9

No e.g. provisions in a trust for paying staff who occupy key roles in the charity will not invalidate the trust’s charitable nature.

Question 10

Would a trust to provide treatment of a particular disease which charges very high fees for treatment qualify as a charitable trust?

Answer 10

No. Although it would benefit the public generally or a sufficient section of the public, the charging of very high fees may in fact limit the benefit only to a small group.

Question 11

Can a charitable trust have a political purpose?

Answer 11

• Main purpose is political (e.g. campaigning for a change in the law or the dissemination of the ideas of a particular political party): No* Ancillary purpose to main purpose is political: Yes

Question 12

What is the rationale behind a trust with a political purpose as its main purpose failing the public benefit test?

Answer 12

The court cannot decide that there is a public benefit in one side of a political argument

Question 13

A trust’s purpose is to help the homeless. In the course of its activities, it campaigns for more low cost housing to be provided. Does this trust satisfy the public benefit test?

Answer 13

Yes. Although this activity is political, it is ancillary to the main purpose of the charity and will not cause it to lose its charitable status.

Question 14

Does a trust whose main purpose is to seek the repeal of laws allowing the use of animals for medical experimentation satisfy the public benefit test?

Answer 14

No as the main purpose was political. (National Anti-Vivisection Society v Inland Revenue Commissioners [1948] AC 31) 5.2.3

Question 15

When will a trust with noncharitable purposes satisfy the public interest test?

Answer 15

Only where they are merely incidental to the principal charitable purpose. Charitable trusts must be wholly and exclusively charitable.

Question 16

An educational charity provides university grants to the children of those living below the poverty line. The charity uses its funds to pay for an annual dinner held for the trustees as thanks for their work. Does this trust satisfy the public benefit test?

Answer 16

Yes . The dinner is an incidental purpose and would not contravene the charitable status of the charity.

Question 17

If a charitable trust has multiple purposes, is it permissible for some of these to be noncharitable?

Answer 17

No, where a trust contains more than one purpose, each one must be of a charitable nature. * However, if a trust directs trustees to divide gifts between some charitable and some noncharitable objects, the court can sever the charitable part from the noncharitable part and allow the charitable part to take effect.

Question 18

A trust in a will is for “such charitable or benevolent purposes as my trustees think fit”. Does this trust satisfy the public benefit test?

Answer 18

No. The trust is not a valid charitable trust because “benevolent” purposes are not necessarily charitable (e.g. giving money to a for-profit school may be benevolent because it advances education, but it is not charitable as private investors will receive dividends).

Question 19

T bequeaths £100,000 to trustees to divide the income into two parts and distribute it “one part to such educational institutions and the other to such worthy individuals as the trustees should select”. Does this qualify as a charitable trust?

Answer 19

The fund may be divided and the first part applied as directed.The second part fails as a private discretionary trust on two grounds: * the objects do not meet the relevant test of certainty (the ‘given postulant test), and* the power to distribute income to worthy individuals can be exercised beyond the period of the Rule Against Perpetuities.

Question 20

Who enforces charitable trusts?

Answer 20

Attorney General enforces on behalf of the public at large

Question 21

Can a charitable trust exist perpetually?

Answer 21

Yes

Question 22

How do the inalienability and remoteness of vesting rules apply in relation to:* private trusts* charitable trusts

Answer 22

Inalienability* Private trusts: prevents the capital of a trust from being held indefinitely while the income is applied for some private purpose. * Charitable trusts: Does not apply. A direction to trustees of a charity to invest the capital and apply the income for the charitable purpose is valid. Remoteness of vesting * Private trusts: Gift must vest within the perpetuity period. * Charitable trusts: Initial gift to a charity must vest within the perpetuity period. However, a gift from one charity to another can take effect at any distance in time.

Question 23

“To the Newtown YMCA for so long as the premises are used for YMCA purposes, and if the premises shall ever cease to be so used, then to the Newtown Fund for the Relief of Poverty”. Is this charitable trust valid under the remoteness of vesting rule?

Answer 23

Yes under the charity-to-charity exception.

Question 24

What is the cy-pres doctrine?

Answer 24

Doctrine which permits the court to direct that the trust property be applied to another charitable purpose as close as possible to the original one rather than allowing the trust to fail, where the original charitable purposes of a trust have become impossible or impractical to carry out (e.g. charity closed down):* Initial failure requires a general charitable intention for the doctrine to apply* Subsequent failure does not require a general charitable intention

Question 25

How does the doctrine of cy-pres apply where there is an initial failure of a charitable gift?

Answer 25

If a charitable gift or trust is impossible or impractical to carry out at the time it comes into operation, the court can apply the funds cy-pres only if the settlor has shown a general charitable intention. Initial failure most commonly occurs where the gift is made in a will.

Question 26

A testator’s will contains a legacy to “the Newtown Home for Stray Cats”. Before the testator’s death, the Newtown Home for Stray Cats, which was a charity, has closed down. What is required in order for the doctrine of cy-pres to apply to the gift?

Answer 26

The gift will fail unless the court decides that the testator showed a general charitable intention. * So if evidence shows the testator was particularly interested in the Newtown Home e.g. because the testator obtained his three favourite cats from that home-and he had a disdain for other nearby animal shelters, the trust would fail. * But if the evidence showed the testator was interested in helping all cats, the court will substitute a similar charity as the trust’s beneficiary, such as a nearby animal shelter that accepts cats.

Question 27

How does the doctrine of cy-pres apply where there is an subsequent failure of a charitable gift?

Answer 27

If the objectives of a charitable trust become impossible or impractical to carry out after it has come into operation, the funds may be applied cy-pres without any requirement to show general charitable intention on the part of the settlor.

Question 28

A settlor placed funds on trust to apply the income for the maintenance of Littleton Church. Many years later the church building becomes unsafe and is demolished. Is the doctrine of cy-pres applicable?

Answer 28

Yes. The funds may be applied cy-pres for a similar purpose such as the maintenance of the church in a neighbouring village, regardless of the intentions of the settlor.

Question 29

What is the key piece of information that must be determined in an SQE question regarding the failure of a charitable gift in a will?

Answer 29

If a gift to charity in a will fails because the charity has closed down, check the date of the closure.* If it is after the testator’s death, the gift has already vested and you do not need general charitable intention* If it was before, there will be an initial failure and a general charitable intention must be found in order for the doctrine of cy-pres to apply

Question 30

Which 3 factors are relevant to whether a gift is one with ‘general charitable intention’?

Answer 30

• Gift to Specific Named Charity: General charitable intention is difficult to find unless the named charity never actually existed* Other Gifts to Charity: The court will look at the will as a whole, and if there is more than one gift to charity, a general charitable intention is more likely. * Detailed Plans Where a testator has set out plans for the establishment of a charitable trust but there are insufficient funds to carry them out, the court is less likely to find a general charitable intention if the plans are very detailed.

Question 31

Is a general charitable intention required to apply proceeds of collecting boxes and anonymous gifts cy-pres?

Answer 31

No, general charitable intention is not required where money has been collected or raised and the donors are not known, even in cases of initial failure.

Question 32

Funds have been raised to buy land as a sports ground for village children. The target is not met and there is not enough money to carry out the charitable purpose. Can the funds be applied cy-pres?

Answer 32

Yes, the funds may be applied cy-pres where the donors are unknown.

Question 33

What four types of private purpose trusts are valid?

Answer 33

Valid private purpose trusts include:* Denley trusts* Trusts for the maintenance of particular animals * Trusts for the saying of private masses and* Trusts for the erection and maintenance of monuments and graves.

Question 34

What is a denley trust?

Answer 34

A trust which appears to be for a private purpose will succeed if it is actually for the benefit of ascertainable human beneficiaries who may enforce the trust (Re Denley’s Trust Deed [1968] 3 AIl ER 65)* Denley trusts do not confer a beneficial interest on the identifiable individuals, they have the power to enforce the trust by injunction if the trustees are in breach. * Given that identifiable individuals are not beneficiaries with full beneficial entitlement, they are not permitted to use the rule in Saunders v Vautier to terminate the trust.

Question 35

Land was transferred to trustees to be maintained and used as a sports ground for the employees of a company, and others permitted by the trustees, for as long as the law should allow, with a gift over of the land at the end of that period. The validity of the trust was challenged on the basis that it was a private purpose trust. What type of trust is this?

Answer 35

A Denley trust. The court held that the trust was valid. The beneficiaries were the employees of the company for the time being, any one of whom could enforce the trust if the land was not used for the specified purpose. Note that the trust was not charitable because the beneficiaries were a private group and that the perpetuity rules were satisfied by the terms of the gift.

Question 36

Can the rule in Saunders v Vautier be used by beneficiaries in a Denley trust?

Answer 36

No

Question 37

What is an honourary trust?

Answer 37

Valid noncharitable purpose trusts which must be within the perpetuity period for:* the maintenance of specific animals* the saying of private masses, and * the maintenance of specific graves or tombs The trust relies on the ‘honour’ of the trustee and are not otherwise enforceable as there is no beneficiary.If the trustee fails or refuses to do so, a resulting trust will be imposed for the settlor or the settlor’s estate.

Question 38

What is the perpituity period for honourary trusts?

Answer 38

The perpetuity period of 21 years (including a human life in being plus 21 years) applies. * If the trust may continue for longer than 21 years, it will fail from the outset. * The court will not take judicial notice of the likely lifespan of a particular living animal; so, a gift for an animal’s maintenance will fail unless specific provisions are made limiting its duration. * However, if the whole of the gift is likely to be spent within the perpetuity period, the gift may be valid.

Question 39

Is a gift in a will leaving “£10,000 to L to invest and use the income to maintain my dog Bruno” valid?

Answer 39

No, it will fail as it contravenes the Rule Against Perpetuities, whatever the age of the dog at the testator’s death. The addition of the words “for as long as the law allows” or “for a maximum of 21 years” would save the gift.

Question 40

Is a gift in a will leaving “£1,000 for the maintenance and benefit of my cat Felix” valid?

Answer 40

It may be found valid on the basis that the money is likely to be exhausted within the perpetuity period.