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Trusts | Formation

Purpose Trusts: Overview

Revision Note | Degree

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  • purpose trust specifies use for trust fund
  • purpose trusts are void if no ascertainable beneficiaries

Non charitable trusts: disadvantages

  • generally non-charitable purpose trusts offend beneficiary principle

    Morice v Bishop of Durham (1804) 7 RR 232

    • Sir William Grant: There can be no trust, over the exercise of which this Court will not assume control; for an uncontrollable power of disposition would be ownership, and not trust... There must be somebody, in whose favour the court can decree performance...

    Re Shaw [1957] 1 WLR 729

    • void purpose trust: in George Bernard Shaw's will a trust for research into a proposed 40-letter alphabet
  • uncertainty may also arise in non-charitable purpose trusts

    Re Astor's Settlement Trusts [1952] Ch 534


    • attempted non-charitable purpose trust: for the maintenance of... good understanding, sympathy and co-operation between nations & preservation of the independence and integrity of newspapers


    • was the disposition valid?


    • trust void: beneficiary principle offended & uncertainty of purpose
    • Roxburgh J: ..the purposes must, in my judgment, be stated in phrases which embody definite concepts and the means by which the trust trustees are to try to attain them must also be prescribed with a sufficient degree of certainty...
  • capriciousness may also void a purpose trust

    Brown v Burdett (1882) 21 Ch D 667

    • void as capricious: a trust to block up rooms in a house

Charitable trusts: advantages

  • charities must register with Charity Commission (CC) so business of trust open to public inspection
  • charitable trusts not subject to beneficiary principle
  • charities provide public benefit therefore enforceable by the State: Attorney General court proceedings against trustees (Ts) & CC ensures charitable trusts properly carried out
  • CC appointed Home Secretary, publically accountable, statutory powers & duties: can investigate charitable trusts, demand information, protect charity property & remove Ts
  • duration not limited to perpetuity period
  • certainty of objects does not apply

    Re White [1893] Ch 43


    • trust for educational purposes where testator made gift to the following societies... but left names blank


    • is trust valid?


    • Ts can apply to CC for scheme prescribing use of money
  • charities may gain more contributions from donors due to regulation (virtuous aura)
  • tax incentives for charities:
    gift or creation charitable trust exempt inheritance tax
    reduced rate of inheritance tax if proportion of estate left to charity
    charity reclaim income tax paid on amount donated (gift aid)
    charities investments are exempt from income tax

Charitable trusts: creation

  • various forms of charities:
    Charitable Incorporated Organisation (CIOs): company, if charity has commercial enterprise
    unicorporated association: governed by own rules & constitution to promote charitable purpose
    trusts: Ts hold property on trust to carry out charitable purpose
  • three conditions for body to be recognised as charitable
    • s.1(1): must have charitable purpose (under heads of charitable purposes in s.3(1))
    • s.1(1): exclusively for a charitable purpose
    • s.2(1): purposes are for public benefit (defined under s.4)
  • Charities Act (CA) 2011 consolidated statutes & case law, so interpreted in accordance with previous case law
  • CC published guidance on interpretation of CA 2011

    Principle 1: must be identifiable benefit or benefits:

    • s.4(2) CA 2011: no presumption benefit must be proved
    • benefit must be clear & related to aims
    • benefits must be balanced against detriment or harm (not exceed)

    Principle 2: benefit must be to public or section of public:

    • no issue if available to all public, even if small number only take advantage
    • access for restricted groups: must not be negligible number of people & not unreasonably restricted
    • must be sufficiently large or open in nature given the charitable aim
  • Ts (or those running organisation if not trust): duty to apply to CC for registration & CC will apply criteria to decide charitable status
  • registration: raises conclusive presumption that trust or body is charitable
  • right of appeal to courts or Charity Tribunal

The prevention or relief of poverty

  • first head of charitable purpose
    • s.3(1)(a): the prevention or relief of poverty
  • no rigid test for poverty

    Independent Schools Council v Charity Commission [2011] UKUT 421

    • poverty does not mean destitution
    • refers to people who cannot reasonably afford to meet a particular need by purchasing at full cost price the service which it is the charity's purpose to provide

    Re Coulthurst [1951] Ch 661

    • poverty may include temporary hardship

    IRC v Oldham Training & Enterprise Council [1996] STC 1218

    • trust to set up unemployed in trade or business & enable them to stand on their own feet held to be charitable for the relief of poverty
  • sufficient section of society less stringent in relation to s.3(1)(a) CA 2011
    • poverty provides exception to size of public required

    Re Scarisbrick [1951] Ch 622

    • Jenkins LJ: distinction is between a trust to relieve poverty among a class of persons (charitable) & gift to individuals (not charitable)
    • trusts which relieve poverty among relations, employees of the same employer and members of a club or society all sufficient

    Re Segelman [1996] Ch 171

    • if more beneficiaries will be added(as more descendants born in future) more likely interpreted as class than gift to individual

Advancement of education

  • second head of charitable purpose
    • s.3(1)(b): advancement of education
  • includes: educational institutions, provision scholarships, museums, libraries, zoos
  • fund research if public benefit satisfied

    Re Hopkins' WT [1965] Ch 669

    • must be identifiable benefit

    McGovern v Attorney General [1982] 1 Ch 321

    • contemplated that the results will be disseminated
  • if educational trust not open to whole public must be sufficient section & not personal nexus (personal quality such as a relationship)

    Re Compton [1945] 1 Ch 123

    • personal nexus: relationship with individual or individuals, for education of children of three family lines (relationship need not be with settlor to be insufficient)
    • personal nexus: employment by common employer
    • to constitute sufficient section of society:
      group must not be numerically negligible
      & quality distinguishing group from everyone else must not be personal nexus
  • personal nexus: membership of an association which involves contract with the association, such as trade union
  • profession rather than employer may be sufficient

    Hall v Derby Sanitary Authority (1865) 16 QBD 163

    • sufficient public benefit: trust for children of particular profession as no personal nexus (parents employed by different employers)
  • personal nexus test prevents trusts securing tax privileges of charitable status & denies exemption from beneficiary principle, inalienability & certainty of objects
  • personal nexus test has been criticised
    • Lord Simonds : test is a very arbitrary and artificial rule
    • Lord MacDermott: distinction unclear (employment by common employer personal nexus, students at particular university not)
      application of personal nexus test produces anomalies (trust for workers may be sufficient but for employees not)
      test contradicts itself (pupils of private school found to be sufficient but personal nexus links them as parents have all contracted with school)
      test does not take account of numbers (thousands of employees insufficient)
    • Lord MacDermott: test should be one of degree, considering all circumstances decide whether public or private
    • Lord Cross: suggested two tests of charitable status
    • first test: exist to determine whether tax benefits apply (personal nexus test)
    • second test: decide whether trust charitable for all other purposes (no reason for barring personal nexus trusts)
  • institution charges fees issues: not charitable if purpose to make profit for individuals as prevents exclusively charitable requirement & also if insufficient section of public helped
    • trust must not make profit so any profits must be ploughed back into charitable purpose
    • can a private school satisfy the public benefit test?
    • schools whose sole object is education of children whose families can afford fees not charitable
    • school excludes poor (those of modest means) from benefitting
    • charitable: if school makes more than token provision for less well-off (scholarships, bursaries, provision for local state school students to access facilities)
    • if de minimis threshold satisfied Ts can operate assistance schemes without interference form CC or courts

Advancement of religion

  • third head of charitable purpose
    • s.3(1)(c): advancement of religion
    • s.3(2)(a): religion includes religions which involve belief in more than one god & those which do not involve belief in a god
  • trusts which fail under this head may succeed under advancement of education

    Re South Place Ethical Society [1980] 1 WLR 1565

    • not advancement of religion if purposes concerned with ethical values & philosophical discussions of whether a god exists
  • if tenets of trust constitute religion purposes must also be advancement

    Freemasons of England v Holborn Borough Council [1957] 1 WLR 1080

    • advance: takes positive steps to increase & sustain religious belief through religious services, provision or repair of places of worship, training of clergy & distribution of publications
  • generally courts make no distinction between religions or sects

    Thornton v Howe (1862) 31 Beav 14

    • distinction only drawn if tenets or practices are: adverse to the very foundations of all religion and... subversive of all morality
  • if worship is open to all public benefit will be satisfied even if number of followers is small
  • personal nexus test is not applicable
  • indirect benefit will suffice - assumption of public benefit

    Neville Estates v Madden [1962] Ch 832

    • Cross J: benefit result from the attendance at places of worship of persons who live in the world and mix with their fellow citizens
  • public benefit not present if benefits not extend outside closed membership
    • gift for purposes of closed community of Roman Catholic nuns, who had no contact with the outside world
    • argued charitable: nun's prayers brought benefit to everyone & their lifestyle was beneficial to all as an example
    • was there sufficient public interest?
    • not charitable: no evidence prayer brought tangible benefit or that pious lives were beneficial to others

Amateur sport & recreation

  • fourth charitable head
    • s.3(1)(g): advancement of amateur sport
    • s.3(2)(d): sport means sports/games which promote health by involving physical/mental skill/exertion
    • s.5: recreational and similar trusts, charitable if:
      provides/assists in providing facilities for recreation/leisure-time occupation
      in the interests of social welfare
      there is a public benefit
    • social welfare not satisfied unless:
      facilities provided with object of improving conditions of life of intended beneficiaries
      & either
      beneficiaries have need facilities due to youth, age, infirmity, disability, poverty or social/economic circumstances, or
      facilities are open to public or male/female members of public
  • public benefit test particularly strict, if a restricted group must be no personal nexus nor class within a class
    • trust promoting religious, social & physical training for residents of West Ham , who were or were likely to become Methodists
    • was trust charitable?
    • insufficient benefit: case preceded statutory list of charitable purposes
    • Viscount Simmonds: distinguished a form of relief extended to the whole community yet by its very nature advantageous only to the few, and a form of relief accorded to a selected few out of a larger number equally willing and able to take advantage of it...
    • restricting benefits to West Ham residents not an issue, further limiting to Methodists problematic: created class within a class & therefore not sufficient section of public to satisfy public benefit
    • testator left money for purpose of local sports centre open to public
    • is deprivation a necessary requirement?
    • HoL: trust was charitable & dismissed argument that trust lacked social welfare as only accessible by rich (who could not have their conditions of life improved)
    • Keith LJ: The fact is that persons in all walks of life and all kinds of social circumstances may have their conditions of life improved by the provision of recreational facilities of suitable character...

Advancement of saving lives

  • fifth charitable head
    • s.3(1)(d): advancement of health or saving of lives
  • group who will benefit must not: be linked by personal nexus or be class within a class
  • hospitals not class within a class: the ill or injured within a geographical area (nature of benefit further restricts it to the ill or injured)
  • trusts & gifts for private hospitals (fee-paying patients) may be charitable
    • private hospital charitable provided no profit accrues to individuals
    • not condition of validity of trust for relief of the sick that it should be limited to poor sick
    • not charitable: trusts which excluded the poor (by limiting admission to the rich)
    • private hospitals may provide benefit (as in instant case): some free beds for those who contributed to medical benefits scheme & wider benefits (relieving pressure on local general hospital & improvements in standard of care from juxtaposition of public & private hospitals)
    • Lord Herschell: I certainly cannot think that they (charities and charitable purposes) are limited to the relief of wants occasioned by lack of pecuniary means...

Political Purposes

  • generally political purposes are not charitable

    McGovern v Attorney General [1982] Ch 321

    • political purposes aim to:
      further interests of a particular political party
      procure changes in the laws of UK / or foreign country
      procure reversal of government policy/decisions in UK/ abroad
  • trusts & bodies which have been found not charitable include
    • where main object of the society is the total abolition of vivisection... and for that purpose the repeal of the Cruelty to Animals Act 1876 and the substitution of a new enactment prohibiting vivisection altogether

    Re Hopkinson [1949] 1 All ER 346

    • trust for the advancement of adult education with particular reference to... the education of men and women of all classes (on the lines of the Labour Party's memorandum headed 'A Note on Education in the Labour Party')... to a higher conception of social, political and economic ideas and values...

    Southwood v Attorney General (2000) 80 P&CRD 34

    • the advancement of the education of the public in the subject of militarism and disarmament by demilitarisation
  • if one of several objects is political, trust is not exclusively charitable & whole trust will not gain charitable status
  • exceptions to exclusivity rule: to allow charitable status for trust which carries out some political activity
  • exception 1: if non-charitable purpose is ancillary/incidental to main charitable purpose

    McGovern v Attorney General [1982] Ch 321

    • Slade J: The distinction is ... one between (a) those non-charitable activities authorised by the trust instrument and which are merely subsidiary or incidental to a charitable purpose, and (b) those non-charitable activities so authorised which in themselves form part of the trust purpose. In the latter but not the former case, the reference to non-charitable activities will deprive the trust of its charitable status...
  • question of degree whether purpose is ancillary & involves construing trust document to ensure political activity is not purpose in its own right but rather means to accomplish main charitable purpose
  • CC published guidance on campaigning

    'Campaigning & Political Activities by Charities' (2008)

    • So long as a charity is engaging in campaigning or political activity solely in order to further or support its charitable purposes, and there is a reasonable likelihood of it being effective, it may carry out campaigning and political activity, as set out in this guidance. The activities it undertakes must be a legitimate and reasonable way for the trustees to further those purposes, and must never be party political.
    • A charity can make public comment on social, economic and political issues if these relate to its purpose, or the way in which the charity is able to carry out its work.
  • exception 2: if court prepared to sever the non-charitable purpose
  • severance possible if court can quantify amount intended for non-charitable purpose & amount meant for the charitable object
  • policy reasons not to extend charitable status to political objects

    McGovern v Attorney General [1982] Ch 321

    • court cannot judge whether proposed change in law would be for public benefit
    • in context foreign laws: may jeopardise international relations
    • courts decide cases on basis of law as it stands, not role of courts to interfere with changing law
  • Attorney General enforces charitable trusts & would be incompatible with position as officer of government to enforce charitable trust whose objects were to change the law
  • tax benefits of charitable status (public subsidy) should not be use dot promote controversial political aims
  • however there are reasons to extend charitable status to political aims:
  • courts already make difficult value judgments on whether purposes have identifiable benefit, so assessing future benefit of law change should not be an issue
  • courts should be able to accept diametrically opposing views could both have sufficient public
  • benefit to be charitable provided each have sizeable number of adherents, neutral stance adopted for religions could be applied (Stevens & Feldman)
  • courts not usurping function of Parliament by merely allowing charitable trusts to advocate law reform
  • post-McGovern advancement of human rights is charitable purpose (s.3(1)(h) CA 2011) & there are minimum standards which are recognised as beneficial
  • infringement of Article 10 ECHR: ban on political activism can be interpreted as imposing State control on charities ( tax benefits only for charities which do not criticise the law )
  • charities can provide useful specialist advice as to law & should not be restricted in doing so
  • Chesterton argues by refusing to endorse calls for change in the law, judiciary acting politically by retaining conservative view proper roles of charity & politics
  • may impact on charities to offer long-term sustainable solutions if advocating law change is not permitted

Non charitable trusts: creation

  • existence of non-chartable purpose trusts can be prevented due to issues: beneficiary principle, sufficient certainty & inalienability of capital

Rule against inalienability

  • most non-charitable purpose trusts beneficial interest cannot vest as there is no human beneficiary, therefore rule against inalienability of capital exists
  • rule limits non-charitable purpose trusts to 21 yrs, by making void if it requires Ts to tie up capital (through investing) for more than 21 yrs
  • satisfying rule: explicitly state trust will end after 21 yrs or providing for Ts to spend capital on purpose & thereby ending trust (Ts do not have to do this but need the ability to do so)
  • if settlor wants trust to last more than 21 yrs: should be advised to create charitable trust as exempt from rule
  • two instances where non-charitable purpose trust will succeed: if purpose falls within exception to beneficiary principle and if purpose trust is framed as trust for people

Exceptions to beneficiary principle

  • beneficiary principle must be satisfied in addition to rule against inalienability
  • exception beneficiary rule: trust for maintenance of particular animals

    Re Dean (1889) 41 ChD 552

    • valid: trust to maintain testator's horses & hounds for 50 years if any of them should live so long
  • exception beneficiary rule: trust for erection or maintenance of graves or monuments

    Pirbright v Salwey [1896] WN 86

    • trust for maintenance of grave valid for so long as the law for the time being permitted (currnetly 21 yrs despite no beneficiary to enforce)
  • exception only applies in limited cases

    Re Astor's Settlement [1952] Ch 534

    • Roxburgh J : properly be regarded as anomalous and exceptional and in no way destructive of [the beneficiary principle]
    • Harman LJ: these cases stand by themselves and ought not be increased in number, nor indeed followed, except where the one is exactly like the other
  • Ts can be still held accountable in court

    Re Thompson [1934] Ch 342

    • without beneficiaries to enforce, if Ts do not use money for purpose beneficiaries of resulting trust can take court action to claim

Purpose trusts framed as trusts for people

  • exception may apply if trust fund is to be applied for a purpose, but that purpose benefits ascertainable individuals

    Re Denley's Trust Deed [1969] 1 Ch 373

    • land conveyed to Ts for 21yrs after death of X
    • land should be: maintained and used as and for the purpose of a recreation or sports ground primarily for the benefit of the employees of the company...
    • was purpose of trust framed as trust for people?
    • trusts valid: employees ascertainable & sufficiently tangible benefit
    • if individuals derive sufficiently tangible benefit entitled to go to court to enforce trust & not offend beneficiary principle
    • Goff J: .. in my judgment the beneficiary principle of Re Astor, which was approved in Re Endacott... is confined to purpose or object trusts which are abstract or impersonal. The objection is not that the trust is for a purpose or object per se, but that there is no beneficiary... Where, then, the trust, though expressed as a purpose, is directly or indirectly for the benefit of an individual or individuals, it seems to me that it is in general outside the mischief of the beneficiary principle...
  • Unclear what interests employees had in Re Denley & whether equitable interest in trust giving proprietary rights (problem: employees could sell the trust property to developer rather than use for sport - Saunders v Vautier)
  • no proprietary interest in the land rather factual benefit - right to play sport there (problem: beneficiaries merely need factual benefit rather than ownership of property interest in order to enforce the trust)
    • Privy Council: upheld rights of objects of a power of appointment (with no equitable interest in the trust property until appointment is made) to disclosure of trust documents as part of their right to enforce trusts, suggesting right of enforcement independent of any proprietary interest
  • certainty of objects must be present in Denley-type trusts: test unclear likely given postulant & must not be too many objects to make trust administratively unworkable (R v District Auditor, ex parte West Yorkshire Metropolitan County Council (1986))

Gifts to unincorporated associations

  • unincorporated not legal person capable of holding property (person & companies can be donee of a gift)

    Re Recher's WT [1972] Ch 526

    • Brightman J: .. it would astonish a layman to be told that there was difficulty giving a legacy to an unincorporated non-charitable society...
  • most clubs & societies are unincorporated associations
    • two or more members bound together to pursue common purpose(s)
    • they have mutual rights & duties arising from contract between them & set out in club's rules or constitution
    • the members can join or leave at will
  • purpose: inward looking (benefits for members) or outward looking (purpose not benefit members themselves)

Gifts: outright

  • beneficiary principle can be construed as satisfied

    Re Recher's WT [1972] Ch 526

    • outright gift to a non-charitable club is usually construed as a gift to the existing members
    • members do not take gift as joint tenants (so not free to demand individual share)
    • considered beneficial gift to members which can only be used in accordance with rules and purposes of club
  • rule against inalienability must not be offended (club rules must not prevent funds being spent)

    Re Grant's WT [1979] 3 All ER 359

    • testator left residue to Labour Party Property Committee for the benefit of Chertsey Labour Party (CLP)
    • was legacy valid under Recher construction?
    • invalid: members could not spend funds in any way wished or change rules to allow
    • important factor: National Labour Party could control funds & demand at any time
  • Recher construction applies to inward & outward looking associations

Gifts: designated purpose

  • if specified purpose benefits members does not offend beneficiary principle

    Re Lipinski's WT [1976] Ch 235

    • trusts which specify purpose which benefits members do not offend beneficiary principle but must also comply with Re Grant rule (not offend rule against inalienability)

    Re Horley Town Football Club [2006] All ER (D) 34

    • land given on trust for the primary purpose of securing a permanent ground for the club
    • club rules allowed members to call general meeting, pass resolution to dissolve club & divide assets
    • was trust valid?
    • valid: beneficiaries club members & no issues relating to inalienability rule
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