PURPOSE TRUSTS

NON-CHARITABLE PURPOSE TRUSTS

CHARITABLE PURPOSE TRUSTS

Rule against remoteness of vesting


Applies to charitable trusts = property held on a charitable trust must vest in the charity within 125 years.


Trustees will continue to hold and use capital which vests in charity unless the property runs out. Property may never run out = charitable purpose trusts can exist indefinitely.


Enforceable by Attorney General

CY-PRES DOCTRINE


If charitable purpose trust fails any surplus funds will be applied to another charitable purpose by the Charity Commission or court.


  • There are 5 grounds on which the original purpose can be altered:
  1. The original purpose has been fulfilled or cannot be carried out
  2. The original purpose may still be workable but does not use all the property available to the trust
  3. The property from similar trusts is combined so as to be used more effectively
  4. The original purpose referred to an class of persons which is no longer relevant or suitable
  5. The purpose has: been adequately provided for by other means OR ceased to be charitable in law OR ceased to provide a suitable ] method of using the property

Where a private trust fails there is usually a resulting trust to the settlor

HOWEVER - if there is an initial failure > court asks =


Is there a specific intention to benefit a particular object, or an intention to give effect to a general mode of charity in document (even if reference to specific object?
Only in the latter case can property be applied cy-près

Non-charitable purpose trust may be valid if they fall within the exceptions to the beneficiary principle (established in Re Endacott) which apply only when a trust is created in a will:


  1. Trusts for the maintenance of particular animals
  2. Trusts for the erection and maintenance of monuments and graves
  3. Trusts for the saying of private masses

These are not charitable as do not pass pubic benefit test


There is no recognised method of enforcement for non-charitable purpose trusts. They are therefore known as ‘trusts of imperfect obligation’.

Rule against inalienability

Applicable to non-charitable purpose trusts = trust cannot last longer than the common law period of 21 years (can be extended by reference to a human (not animal) life i.e. the 21 year period does not start to run until the person dies).


It must be clear from the outset that the trust must end within the prescribed perpetuity period > no wait and see rule


The perpetuity period starts to run when the trust comes into effect i.e. on the date of the testator's death.

2. Satisfy a public benefit test

No presumption of public benefit

1. Is there an identifiable benefit?


Question of fact = must be identified having regard to all the evidence > settlor’s belief as to benefit is not relevant.


Benefit is balanced against any detriment or harm arising from the purpose.

2. Public or section of the public


The purpose must be beneficial to the public or section of the public, not to a private class of individuals. (purpose cannot be political)


Test:

  • the possible beneficiaries must not be negligible in number; and
  • the quality which distinguishes them from other members of the community must not depend on their relationship to a particular individual

Charities can choose to focus on certain beneficiaries provided that:

  • they have proper reasons for doing so
  • the poor are not excluded from benefit
  • the people focused on are a sufficient section of the public for the charity’s purpose

Public benefit requirement is relaxed for prevention or relief of poverty trusts= beneficiaries can be connected to settlor

3. Be wholly and exclusively charitable


All its purposes must be charitable


If a trust has a mix of charitable and non-charitable purposes, the consequences depend on facts:


  • Basic rule = trust will be void unless the non-charitable purpose falls within a recognised category of non-charitable purpose trusts. If the trust fails, the property will return to the settlor on a resulting trust


  • If the non-charitable purpose is incidental or subsidiary’ to the charitable purpose = trust is effective


  • If the charitable and non-charitable purposes can be separated (quantifiable), and a portion of the fund allocated to each, the court will ‘sever’ the trust and recognise the charitable part. This will only be possible if the trust language contemplates severance of the fund

1. Be for a charitable purpose


  • falls within 1 of 12 heads within s.3(1)
  • is for the public benefit

Heads of charity


1. The prevention or relief of poverty (going short)

  • Judged against a person's status in life: purpose must not benefit the rick / poverty can be inferred / temporary

2. The advancement of education

  • Includes training, research or broader education
  • Includes: museum / galleries / libraries / pre-schools / PTAs / organisations providing lif**e skills training

3. The advancement of religion

  • Includes: religions which involve belief in more than one god / goddess/ supreme beign OR ones which do not involve a belief in a god AND which promote their message
    Requirements:
  • a relationship between the believer and the supreme being
  • seriousness and importance
  • moral or ethical framework

4. The advancement of health / saving of lives (holistic view)

  • Includes: prevention or relief of sickness, disease or human suffering, and the promotion of health

5. Citizenship / Community development
Includes: rural and urban regeneration AND promotion of civic responsibility, volunteering or the effectiveness of charities


6. Arts, culture, heritage or science

  • Must be of merit / have cultural or historical importance

7. The advancement of amateur sport

  • Sports or games which promote health by involving physical or mental skill or exertion

8. The advancement of human rights / conflict resolution

  • Purpose must not stray into political objectives

9. Environmental protection

  • Preservation of the natural environment and promotion of sustainable development

10. The relief of those in need

  • Relief by accommodation or care of those in SPECIFIC need because of youth, age, ill-health, disability, financial hardship or other disadvantage

11. The advancement of animal welfare (cats)

  • Includes improving methods for slaughtering animals

12. The efficiency of public services

  • Relates to the efficiency / technical knowledge / opportunities of the armed forces, the police, fire and rescue services or ambulance services

General purpose

  • Includes purposes which would have been recognised as charitable under the previous law, but not included in heads

Exceptions to the beneficiary principle


  1. Charitable purpose trusts
  2. Non-charitable purpose trusts