Chapter 4 Trusts Law

4.2 Purpose Trusts

• Settlor may want to set up a trust to carry out a purpose or advance a cause

• Issues with validity of purpose trusts sometimes

4.3 Validity Rules for the declaration of trust

• Valid trust needs:

  • Certainty of Intention

  • Certainty of Subject

  • Certainty of Object

  • Beneficiary Principle

  • Perpetuities

  • Formalities

4.4 Beneficiary Principle

• Purpose trust potentially offend the beneficiary principle because there is no individual who can go to court to enforce the trust

• Therefore as a general rule, purpose trusts are void

4.5 Rule against Perpetuities

• Perpetuity rules are not as generous in purpose trusts

• Limit is 21 years for capital to be in a specific trust

• This is unless the trust is for a charitable purpose - then no time limit

• If the trust is for an uncharitable purpose then the purpose trust is void unless either;

  • The trust states it is for no longer than 21 years or

  • The trustees can spend all the capital on the purpose whenever and thereby end the trust at any time

4.6 Charitable Trusts

• Charitable Trusts are exempt from the beneficiary principle and the rule against inalienability of capital

• To be registered as charitable the Charity Commission must decide whether the trust satisfies the conditions set out in the Charities Act 2011:

  • Trust must be for a charitable purpose — (13 predetermined charitable purposes set out in s3(1) CA 2011)

  • The trust must have sufficient public benefit — (Trust must have an identifiable benefit that would help the public or a large section of the public)

  • The trust must be exclusively charitable —( i.e cannot be political too - can only engage in political purposes that are ancillary or incidental to the charitable purpose of the charity)

4.7 Valid non-charitable purpose trusts

• If a purpose trust is not charitable, it will only overcome the beneficiary principle and rule against inalienability of capital if either:

  • it is a Re Denley trust, or

  • it is a trust of imperfect obligation

Re Denley Trust

• If the trust identifies who will benefit from the purpose of the trust then the beneficiary principle is overcome

• Re Denley Trust will be valid if;

  • The purpose of the trust is sufficiently clear and give rise to a tangible benefit,

  • The people who stand to benefit are ascertainable

  • The trust must not offend the inalienability rule (no longer than 21 years)

Trust of Imperfect Obligation

• These trusts include:

  • Trusts to care for specific animals, and

  • Trusts to maintain graves and tombs

• These trusts are valid but unenforceable as there is no human beneficiary to enforce the trusts