Purpose trusts - Trust Law
Introduction
Charitable purpose trusts - recognise despite uncertainty of objects as they are for the public benefit
Non-charitable purpose trusts - recognised as valid in specific cases - Endacott exceptions
Charitable purpose trusts
Not void for infringement of the beneficiary principle as there is a method for their enforcement - A-G and Charity Commission
Sufficient there is an intention to apply property for a charitable purpose.
Benefits of charitable status
No requirement to comply with the beneficiary principle
More flexible rules on certainty of objects
No limit on duration
Cy-pres doctrine - allows trust property to be applied for other charitable purposes even if the specific trust fails
tax benefits
Non-charitable purpose trusts
Purpose must fall within a recognised exception.
No recognised method of enforcement - ‘trust of imperfect obligation’
Restricted by common law perpetuity rules.
Will be void for uncertainty of objects if purpose is unclear - no equivalent to the A-G for non-charitable purpose trusts (like charitable purpose trusts).
Charitable purposes
To have charitable status a trust must:
be for a charitable purpose
satisfy the public benefit test
be wholly and exclusively charitable
Heads of charity
prevention or relief of poverty
advancement of education
advancement of religion
advancement of health or the saving of lives
advancement of citizenship or community development
advancement of the arts, culture, heritage or science
advancement of amateur sport
advancement of human rights, conflict resolution or reconciliation or promotion of religious or racial harmony or equality and diversity
advancement of environmental protection or improvement
relief of those in need because of youth, age, ill-health, disability, financial hardship or other disadvantage
advancement of animal welfare
promotion of the efficiency or the armed forces of the Crown or of the efficiency of the police, fire and rescue services or ambulance service
** general purpose
Poverty
“going short” - do not have resources to provide themselves with the normal things of life which most people take for granted
“wholly and exclusively charitable” - must not benefit the rich
poverty can be temporary
Education
training, research or broader eduction in the development of skills
scholarships to support students and funding of lectures
education institutions (student union to further educational purposes)
dissemination of knowledge (trust for publication of law reports)
museums, libraries, pre-schools, homework clubs, parent-teacher associations, Duke of Edinburgh Schemes
Religion
must meet definition of religion - involves belief in more than one god and a religion which does not involve belief in a god.
must positively advance religion
repair of churchyards or burial grounds
Citizenship/community development
rural and urban regeneration
promotion of civic responsibility, volunteering
Arts, culture, heritage or science
cultural/historically important monuments
preservation of historic land and buildings
art needs to be of ‘merit’
Human rights
Must not stray into political objectives such as seeking to procure changes to the law - hard to say whether change in law is for the public benefit
raising awareness of human rights issues
promotion of restorative justice and other forms of conflict resolution
Wholly and exclusively charitable
All the purposes of the trust must be charitable.
If a trust has a mixture of charitable and non-charitable purposes:
trust will be void unless the non-charitable purpose falls within a recognised category of non-charitable purpose trusts
if non-charitable purpose is incidental or subsidiary to the main charitable purpose, trust will remain effective
if the charitable and non-charitable purposes can be severed to funds can be allocated to each. Amount allocated to each purpose must be quantifiable.
Public benefit and cy-pres doctrine
Public benefit
NO presumption of public benefit
Two elements to the public benefit requirement:
whether there is an identifiable benefit; and
what constitutes the public, or a section of the public
Identifiable benefit
Must be a benefit to the public having regard to all the circumstances
Settlor’s belief as to the benefit is not relevant
Benefit is balanced against any detriment
Public or a section of the public
To satisfy the test:
the possible beneficiaries must not be negligible in number; and
the quality which distinguishes them from other members must be a quality which does not depend on their relationship with another individual
Charity Commission guidance provides focus can be on certain beneficiaries provided that:
they have proper reason for doing so
poor are not excluded from benefit
people focused on are a sufficient section of the public
Cy-pres doctrine
Where a private trust fails, there is usually a resulting trust to the settlor.
Where a charitable purpose trust fails (i.e. settlor fails to specify the method by which the purpose is to be achieved), any surplus funds will be applied to another charitable purpose by way of a scheme established by the Charity Commission or court
s.62 Charities Act 2011
5 grounds on which the original purpose of a charitable trust can be altered:
original purpose has been fulfilled or cannot be carried out
original use may still be workable but does not provide a use for all property on trust (i.e. surplus funds)
property from similar trusts is combined to be used more effectively
original purpose referred to an area or class of persons which is no longer relevant
purpose has:
been adequately provided for already
ceased to be charitable
ceased to provide a suitable method of using the property
General charitable intention
Where there is an initial failure (i.e. property cannot be applied from the beginning), it will only be applied cy-pres if there is a general charitable intention
Consider whether there was a specific intention to benefit a particular object or an intention to give effect to a general mode of charity
Non-charitable purpose trusts
Non-charitable purpose trusts are prima facie void because they breach the beneficiary principle. To be valid, trust must fall within one of the limited exceptions, be sufficiently certain and comply with the perpetuity rules.
Endacott exceptions
Only apply when a trust is created in a will.
Intended purpose must fall within a recognised exceptions to be valid. Cannot be extended by analogy.
Referred to trusts of imperfect obligation. Whilst court recognises their validity, they are not enforceable - Trustee must given an undertaking to comply with the trust.
Must include an express perpetuity period
1. Trusts for the maintenance of particular animals
2. Trusts for the erection and maintenance of monuments and graves
Trust for purpose of constructing or maintaining a monument could be charitable if of cultural or historical importance.
Monuments and graves in respect of private individuals will not be chartiable