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Trusts | Formation

Purpose Trusts: Overview

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Purpose Trusts: Overview

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  • purpose trust: specifies use for trust fund / void if no ascertainable Bs

Non charitable trusts: disadvantages

  • generally offend beneficiary principle Morice v Bishop of Durham / void: 40-letter alphabet Re Shaw
  • void: uncertainty Re Astor's Settlement / capriciousness Brown v Burdett

Charitable trusts: advantages

  • must register with Charity Commission (CC) / open to public inspection / not subject to beneficiary principle / enforceable by Attorney General / duration not limited to perpetuity period
  • CC: appointed Home Secretary / publically accountable / statutory powers & duties: investigate charitable trusts / demand information / protect charity property / remove Ts
  • certainty of objects does not apply / use can be prescribed by CC Re White
  • charities contributions from donors due to regulation (virtuous aura) / tax incentives: gift or creation charitable trust exempt inheritance tax / reduced rate inheritance tax if proportion of estate left to charity / charity reclaim income tax paid on amount donated (gift aid) / charities investments exempt from income tax
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Purpose Trusts: Overview

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Charitable trusts: creation

  • charitable incorporated organisation (CIOs): company / if charity has commercial enterprise
  • unicorporated association: governed by own rules & constitution / promote charitable purpose
  • 3 conditions: Charities Act 2011 / s.1(1): must have charitable purpose (under heads of charitable purposes in s.3(1)) / s.1(1): exclusively for charitable purpose / s.2(1): purposes for public benefit (defined under s.4 )
  • CC guidance interpretation of CA 2011 / Charities and Public Benefit / Principle 1: must be identifiable benefit s.4(2) CA 2011 / no presumption benefit / clear & related to aims / benefits balanced against detriment or harm / Principle 2: benefit must be to public or section of public / no issue if available all / even if small number take advantage / access for restricted groups: not negligible / number of people & not unreasonably restricted / sufficiently large or open nature given charitable aim
  • Ts (or running organisation if not trust) / duty to apply CC for registration / CC apply criteria decide charitable status / registration: conclusive presumption charitable / right of appeal to courts or Charity Tribunal

Purpose: the prevention or relief of poverty

  • CA 2011 s.3(1)(a) / no rigid test for poverty / not mean destitution / people cannot reasonably afford meet particular need / at full cost price service / charity's purpose to provide Independent Schools Council v CC / include temporary hardship Re Coulthurst
  • sufficient section of society: less stringent s.3(1)(a) CA 2011 / poverty exception to size of public required Dingle v Turner / relieve poverty among class of persons (charitable) & gift to individuals (not charitable) Re Scarisbrick / sufficient: trusts relieve poverty among relations, employees or members of club Attorney General v CC / if more Bs future likely class Re Segelman
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Purpose Trusts: Overview

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Purpose: advancement of education

  • CA 2011 s.3(1)(b) / educational institutions / scholarships / museums / libraries / zoos / public research if: identifiable benefit Re Hopkins' WT / results will be disseminated McGovern v Attorney General
  • if educational trust not open to whole public / must be sufficient section / not personal nexus
  • personal nexus: relationship with individual or individuals (education of children of 3 families insufficient) Re Compton / employment by common employer / sufficient if group not numerically negligible & & quality distinguishing group from everyone else not personal nexus Oppenheim v Tobacco Securities Trust
  • personal nexus: membership of association which involves contract (trade union) / no personal nexus profession not employer Hall v Derby Sanitary Authority
  • personal nexus test / criticised / arbitrary & artificial / uncertain / no account numbers / test should of degree (all circumstances & decide whether public or private) Oppenheim v Tobacco Securities Trust
  • suggested: 1st test: personal nexus test (if tax benefits apply) / 2nd test ( whether trust charitable for all other purposes) / no reason for barring personal nexus trusts Dingle v Turner
  • institution charges fees issues: not charitable if purpose profit for individuals / prevents exclusively charitable requirement / also if insufficient section of public helped
  • profits must be ploughed back into charitable purpose Council of Law Reporting v Attorney General / may be charitable: if de minimis threshold satisfied / more than token provision (scholarships / bursaries / provision local state school use facilities) Independent Schools Council v CC
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Purpose Trusts: Overview

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Purpose: advancement of religion

  • CA 2011 s.3(1)(c): advancement of religion / s.3(2)(a): religion: includes religions which involve belief in more than one god / & those not involve belief in a god
  • trusts fail under head / may succeed under advancement of education / not advancement of religion: if purposes ethical values & philosophical discussions of whether a god exists Re South Place Ethical Society
  • advance: takes positive steps to increase & sustain religious belief / religious services, / provision or repair of places of worship / training of clergy / distribution of publications Freemasons of England v Holborn BC
  • distinction only drawn if tenets or practices: adverse very foundations of all religion / subversive of all morality Thornton v Howe
  • public benefit satisfied: if worship open to all / even if followers small / personal nexus test not applicable / indirect benefit suffice (assumption of public benefit) Neville Estates v Madden / not public benefit: if benefits not extend outside closed membership Gilmour v Coats

Purpose: amateur sport & recreation

  • CA 2011 s.3(1)(g): advancement of amateur sport / s.3(2)(d): sports/games which promote health by involving physical or mental skill or exertion
  • s.5: recreational if: provides facilities for recreation / leisure-time occupation / in interests of social welfare / public benefit / social welfare: facilities provided with object of improving conditions of life of intended Bs / & either: Bs need facilities due to youth, age, infirmity, disability, poverty / or facilities are open to public or male/female public
  • public benefit test: particularly strict / if restricted group: no personal nexus or class within a class IRC v Baddeley / deprivation not necessary requirement Guild v IRC
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Purpose Trusts: Overview

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Purpose: advancement of health or saving lives

  • CA 2011 s.3(1)(d) / no personal nexus or be class within a class / hospitals not class within a class
  • trusts & gifts for private hospitals may be charitable: no profit individuals / some free beds / relieve pressure nhs hospitals / improvements in standard of care from juxtaposition of public & private hospitals Re Resch's WT / not limited to heling poor IRC v Pemsel

Political Purposes

  • generally political purposes not charitable / political purposes aim to: further interests particular political party / change laws of UK or foreign country / reverse government policy or decisions in UK or abroad McGovern v Attorney General
  • not charitable: abolition of vivisection National Anti-Vivisection Society v IRC / advancement of education militarism & disarmament by demilitarisation Southwood v Attorney General
  • if one of several objects is political / not exclusively charitable / whole trust not gain charitable status / exceptions to exclusivity rule: allow charitable status for trust which carries out some political activity
  • exception 1: if non-charitable purpose is incidental to main charitable purpose McGovern v Attorney General / question of degree/ construing trust document to ensure political activity not own right rather means to accomplish main charitable purpose
  • CC Campaigning & Political Activities by Charities / sufficient: political activity to further or support charitable aims / reasonable likelihood of it being effective / never be party political
  • exception 2: if court prepared to sever non-charitable purpose / severance possible if court can quantify amount intended for non-charitable purpose & amount meant for the charitable object
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Purpose Trusts: Overview

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Non charitable: rule against inalienability

  • non-charitable purpose trusts / beneficial interest cannot vest (no human beneficiary) / rule against inalienability of capital / void: if requires Ts to tie up capital (through investing) for more than 21 yrs
  • satisfying rule: explicitly state trust end after 21 yrs / or provide Ts ability to spend capital on purpose (thereby ending trust) / or if purpose falls within exception to beneficiary principle / framed as trust for people

Exceptions to beneficiary principle

  • trust for maintenance of particular animals / valid: trust to maintain testator's horses & hounds for 50 years if any of them should live so long Re Dean / erection or maintenance of graves or monuments / valid for so long as the law for the time being permitted (21 yrs despite no beneficiary to enforce) Pirbright v Salwey
  • exception only applies in limited cases Re Astor's Settlement / only where one is exactly like the other Re Endacott
  • Ts can be still held accountable in court / Bs of resulting trust can take court action to claim Re Thompson

Purpose trusts framed as trusts for people

  • if trust fund applied for purpose / purpose benefits ascertainable individuals / not offend beneficiary principle if individuals tangible benefit & entitled court action to enforce Re Denley's Trust Deed
  • unclear Re Denley whether / equitable interest in trust giving proprietary rights (problem: employees could sell the trust property rather than use for sport - Saunders v Vautier) / or factual benefit - right to play sport there (problem: Bs merely need factual benefit rather than proprietary interest to enforce trust)
  • upheld rights of objects of a power of appointment (no equitable interest trust property until appointment made) / disclosure of trust documents / suggesting right of enforcement independent of any proprietary interest Schmidt v Rosewood
  • certainty of objects: must be present in Denley trusts / test unclear: likely given postulant / & not too many objects to make administratively unworkable R v District Auditor, ex parte West Yorkshire Council
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Purpose Trusts: Overview

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Gifts to unincorporated associations

  • unincorporated not legal person capable of holding property Re Recher's WT / person & companies can be donee of a gift
  • most clubs & societies are unincorporated associations / 2 or more members bound together to pursue common purpose / mutual rights & duties arising from contract between them/ set out in club's rules or constitution / members can join or leave at will Conservative & Unionist Central Office v Burrell
  • purpose: inward looking (benefits for members) / outward looking (purpose not benefit members themselves)

Gifts: outright

  • beneficiary principle satisfied: gift to existing members / not take as joint tenants (not free to demand individual share) / beneficial gift to members used in accordance with rules & purposes of club Re Recher's WT / applies to inward & outward looking associations
  • rule against inalienability: must not be offended (club rules must not prevent funds being spent) / invalid: members not spend funds in any way wished or change rules to allow / important factor: National Labour Party could control funds & demand at any time Re Grant's WT

Gifts: designated purpose

  • if specified purpose benefits members / not offend beneficiary principle / must comply Re Grant rule (not offend rule against inalienability) Re Lipinski's WT
  • land given on trust purpose of securing permanent ground / club rules allowed members to pass resolution to dissolve club & divide assets / valid: beneficiaries club members & no issue Re Horley Town FC
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