Charitable Trusts

charitable trusts

The law of charity allows purpose trusts to exist when the trust is for the public benefit.

advanatges of charitable status

less tax burdens and more relief from tax

Should courts consider the fiscal consequences of their decision to recognise a purpose as charitable?

It might be more beneficial for the public for individuals to pay tax than for a new venture to be charitable.

- counter: The courts should not have regard to the tax consequences → tax policy is within Parliament's competence, not the courts'.

Legal advantages for charities

- can exist without a beneficiary (enforced by Attorney General)

- can exist in perpetuity

- generous limitation period for bringing actions against trustees

Charities Act 4 requirements for a purpose to be charitable

1. The character of the purpose must be legally charitable.

2. The purpose must be beneficial to society → it must benefit a significant section of the public, as opposed to a purely private class of individuals.

3. The purpose cannot be political.

4. The purpose must be exclusively charitable.

charities act 200 s2(1)

A charitable purpose is one which

(a) falls within the section 3(1)

(b) is for the public benefit

charities act s3(1)

(a) the prevention or relief of poverty;

(b) the advancement of education;

(c) the advancement of religion;

charities act s3(1)(m)

provides that the old law of charities (i.e. any purposes recognised as charitable before 2011) will continue to be recognised as charitable.

what was charity law before the 2006 Charities act q

the law recognised as charitable any charitable purposes listed in the preamble to the Statute of Charitable Uses.

If a purpose was not in the preamble, the courts could draw an analogy from the preamble.

The preamble examples of charitable purposes

- relief of aged, impotent and poor people

- schools of learning

- education and preferment of orphans

Scottish Burial Reform and Cremation Society Ltd v Glasgow Corporation [1968]

a trust for the cremation of corpses was a charitable trust by analogy with trusts for the provision of burial grounds, this was through an analogy for trusts for the upkeep of churchyards which was an analogy for trusts for the upkeep of churches

Charities Act 2011 s3(1)(m)(iii)

continued to analogical rhetoric

Hudson, Mitchell and Macfarlane

analogy with other purposes is seen as unprincipled and ad hoc and brings the legal process into disrepute

Vancouver Regional Freenet Association v MNR

facts: a charity provided access to the info superhighway (internet)

decision: an analogy was drawn between a trust to repair highways, highways were effective means of communication and internet was in the spirit and intent of communication

Thornton v Howe

facts: testatrix bequeathed land for publishing works of Joanna Southgate, a woman who claimed she was pregnant with the next messiah, held to be a trust for the advancement of religion

decision: gifts of land for religion could be made void by the Mortmain Act, trust made void

Dingle v Turner

charities automatically enjoy fiscal privileges and in deciding that such a trust is charitable, the court is endowing it with a substantial annual subsidy at the expense of the taxpayer.

R (ISC) v Charity Commission

Warren J does not believe the courts should have competence to decide on the effective and efficient allocation of tax revenuesr

distinctions between purposes and activities

The purposes of the trust (not the activities which the trust undertakes to achieve the purpose) are relevant to its status as a charity.

Johnathan Garton

there is a presupposed division between purposes and activities; sometimes the distinction is merely a question of degree.

National Anti-vivisection Society v IRC

facts: a charity argued that its aim to repeal the Cruelty to Animals Act was merely ancillary and its purpose was to advance animal welfare

decision: all the society did was campaign for the repeal of the Act, so that was its purpose. This was not a charitable purpose because it was political

what are the 2 types of public benefit

1. Benefit to society. (first sense)

2. Benefit to a substantial section of society. (Second sense)

Charities Act 2011 s4(2)

there is no presumption of public benefit

- confirmed in the independent schools case

R(Independent Schools Council) v Charity Commission

facts: private schools had recognised charitable status even though they only benefit the wealthiest in society

decison: charity commission held that they could only have charitable status if they provided means-tested bursaries and made their facilities generally available to members of the public

weighing the benefit and detriment

The benefits of the purpose must outweigh the harm that the purpose may cause.

IRC v Baddeley

facts: a trust was created for people living in West Ham and Leyton who were members or likely to become members of the Methodist church

decision: this was not a sufficient section within society because it was a class within a class, which allows individuals to benefit a small private class of individuals

difficulties in applying the class within a class rule

there are certain purposes which, by their nature, will only ever benefit a small number of people.

The question is whether the settlor has artificially limited the class in some way to exclude large sections of the public.

personal nexus rule

A class of private individuals is defined by whether there is some personal relationship connecting them

Re Compton

A trust for the descendants of 3 particular people was held to be a trust for a private class rather than a trust for the public benefit.

Oppenheim v Tobacco Securities

facts: a trust to educate the employees of the British American Tobacco Company

decision: personal nexus test meant it was not a valid trust - only factor linking the employees was the personal nexus between them and their employer and was not a significant section of society

What does Lord Simonds mean by the beneficiaries must not be numerically negligible

- a reasonable number of people must benefit

- The quality which distinguishes who benefits and who does not must not be dependent on a personal relationship to an individual.

Lord MacDermott's dissent in Oppenheim

- there were over 110,000 employees which was a sizeable class/section of society

- if the trust had been drafted to "educate those formerly employed in the tobacco industry" it would have been valid

- the personal nexus test, whilst helpful, must not be automatically conclusive as to whether a class constituted a sufficient section of society.

why cant trusts exist for political purposes

1. courts have no means in judging whether the proposed change in the law would be for the public benefit (NAVS v IRC)

2. It is within the competence of the parliament to decide not the court

3. If courts declared changes in the law to be publicly beneficial, they would be criticising government policy

What 4 reasons does Garton criticise not allowing trusts for political purposes?

1. The courts routinely consider whether a change in the law would be beneficial to society.

2. Granting charitable status to political purposes does not necessarily mean those purposes will be achieved.

3. Granting charitable status does not mean that the court approves of the purposes/changes in the law.

4. Charities already try to fulfil their purposes by political means; it is artificial to refuse to recognise political purpose trusts.

what do other jursidictions believe about charities for political purposes?

Aid/Watch Incorporated v FCT → a trust with a political purpose could be beneficial to the public if it would encourage public debate as this vital to a free and democratic society through the exchange of ideas.

Charities Act 2011 s3(1)(h)

act makes an exception for charities for the advancement of human rights, even though these are political

what does it mean to say a trust must be exclusively charitable?

If the trust instrument permits the trust fund to be used for non-charitable purposes, it cannot be a valid charitable trust.

e.g. Chichester Diocesan Fund v Simpson a trust for worthy causes was not exclusively charitable as it could include non-charitable purposes

Guild v IRC

facts: a trust was set up for a sports centre and for some non-charitable sports purposes

decision: rather than saying this was not exclusively charitable, the HoL construed the phrase to mean a similar charitable purpose and upheld the trust

charitable trusts undertaking non-charitable activities

- The rule is that so long as the activities are incidental, it can still be a valid charitable trust.

- If the trust is set up so that one of its purposes is to pursue one of these non-charitable activities, then the trust cannot be considered exclusively charitable.

how is "poverty" defined in trusts for the relief of poverty

individuals who have to forgo some expenditure because of their financial situation, no requirement to be destitute

(Re Coulthurst)

Re Sanders WT

Facts: A trust was created to provide dwellings for the working class and their families.

decision: working class was not poverty

Re Niyazi WT

facts: Trust was created to construct a working man's hostel during a housing crisis in Cyprus

decision: the size of the gift, working man definition and housing crisis was enough to construe it as a trust for the relief of poverty, but this was dangerously close to the borderline

Charity Comission's guidance on poverty

Poverty typically means households living on less than 60% of median income and going short in some unacceptable way.

- Includes people who work.

- People may qualify for help from a poverty charity even if they do not qualify for state assistance.

poverty trusts as an exception to the benefit to the community rules (Dingle v Turner)

- Trusts for the relief of poverty are an exception to the principle that people benefiting from a charity cannot form a private class of individuals.

- Where a trust provides for the relief of poverty for relations/employees of a particular named individual, the trust can remain valid. (exception to the personal nexus rule)

- However, the primary intention of the trust must be to relieve poverty → requirement of a primary donative intent.

Questions on the scope of trusts for the advancement of education

Is a trust for pure research purposes beneficial to society?

Does propaganda count as education?

- The type of education itself must be beneficial to society.

Re Shaw

research without any element of teaching is not a charitable purpose

AG v McGovern

A trust for research will ordinarily qualify as a charitable trust if:

(a) the subject matter of the proposed research is a useful subject of study; and

(b) it is contemplated that knowledge acquired as a result of the research will be disseminated to others; and

(c) the trust is for the benefit of the public, or a sufficiently important section of the public.

Charity Commission requirement for publication

the research should be made publicly available, so that everyone who is capable of understanding it has access to it, and its benefits or usefulness are widely available to everyone."

Southwood v AG

A trust to disseminate a political opinion is not a trust to educate. It is propoganda and therefore a trust for a political purpose and not a valid charity.

Re South place Ethical society [1980]

set out the definition of religion for the purposes of charity

- faith in a god

- worship of said god

Charities Act 2011 s3(2)(a) definition of religion

(i) a religion which involves belief in more than one god, and

(ii) a religion which does not involve belief in a god.

Scientology

- Charity Commission 1999 - refused to recognise it as a charity because their counselling sessions were not akin to worship

- Hodkin case - SC held that chapel of the church of Scientology is a place of worship

- Scientology failed to fulfil the burden to prove they were for the public benefit

Hodkin

- There needs to be a relationship between the adherent and the object of veneration (god/principle).

- The relationship should be expressed by worship, reverence or adoration.

- It must be capable of providing moral or ethical value or edification to the public and be characterised by a certain level of cogency, seriousness, cohesion and importance.

Jedism

Charity Commission denied:

- members were not required to believe specific thigns they could pick and choose

- the Temple's online activities were not worship

Gilmour v Coates

facts: a trust was set up for cloistered nuns who did not go outside to make intercessory prayers

decision: you have to prove religion has a public benefit to a sufficient section of society and it was impossible to do so in this case