A purpose trust is a type of trust which has no beneficiaries, but instead exists for advancing some non-charitable purpose of some kind. In most jurisdictions, such trusts are not enforceable outside of certain limited and anomalous exceptions, but some countries have enacted legislation specifically to promote the use of non-charitable purpose trusts. Trusts for charitable purposes are also technically purpose trusts, but they are usually referred to simply as charitable trusts. People referring to purpose trusts are usually taken to be referring to non-charitable purpose trusts.
Trusts which fail the test of charitable status usually fail as non-charitable purpose trusts,[1] although there are certain historical exceptions to this, and some countries have modified the law in this regard by statute. The court will not usually validate non-charitable purpose trusts which fail by treating them as a power. In IRC v Broadway Cottages Trust [1955] Ch 20 the English Court of Appeal held: "I am not at liberty to validate this trust by treating it as a power. A valid power is not to be spelled out of an invalid trust."
Conceptual objections
The basis for the general prohibition against non-charitable purpose trusts is usually phrased on one or more of several specific grounds.
A trust is, at its root, an obligation; accordingly, "every [non-charitable] trust must have a definite object. There must be someone in whose favour the court can decree performance."[2] With a charitable trust, this power of enforcement is usually vested in the Attorney General. However, such conceptual objections seem less strong since the decision of the House of Lords in McPhail v Doulton [1971] AC 424 where Lord Wilberforce rode roughshod over objections to widening the class of valid discretionary trusts on the basis that there would be difficulty ascertaining beneficiaries for the court to enforce the trust in favour of.
Where the objects of a trust are a purpose rather than an individual or individuals, there is much greater risk that a trust would not be enforceable due to lack of certainty. Cases such as Morice v Bishop of Durham (1804) 9 Ves Jr 399 and Re Astor [1952] Ch 534 re-affirm the court's disinclination to enforce trusts that are not specific and detailed. It is noteworthy that the common law exceptions to the general prohibition on purposes trusts tend to relate to specific and detailed matters, such as maintenance of a specific tomb, or caring for a particular animal.
Excessive delegation of testamentary power
Purpose trusts have been attacked conceptually on the basis that it would amount to the delegation of a testamentary power,[3] although subsequent cases have cast doubt on the correctness of that reasoning.[4]
Perpetuity
Charitable purpose trusts are exempt from the rule against perpetuities. Private trusts are not. Accordingly, all non-charitable purposes trusts, to be valid, need to comply with the perpetuity rules in the relevant jurisdiction.
Common law exceptions
There are, nonetheless, several well recognised exceptions at common law where non-charitable purposes trusts will be upheld.
Tombs and monuments
Provisions for the building or maintenance of tombs or monuments have been upheld as a matter of common law, although solely on the basis of ancient precedent. In Re Hooper [1932] 1 Ch 38 a trust for the maintenance of graves was upheld, but the court indicated that it would not have done so had it not been bound by Pirbright v Salwey [1896] WN 86. Such trusts still need to comply with the requirement of certainty. Hence a bequest to a Parish council for "the purpose of providing some useful memorial to myself" was struck down.[5]
Animals
Trusts for the care of specific animals have been upheld.[6] In Re Dean (1889) 41 Ch D 552, North J upheld a trust for maintenance of horses and hounds for 50 years relying upon much older authorities[7] and the monument cases.
Quistclose trusts
Historically, Quistclose trusts have sometimes been considered to be purpose trusts, but the modern view is that they are resulting trusts to the settlor subject to a power to dispose of the assets in a predetermined fashion.
Private masses
Private masses, also known as prayers for the soul was upheld to amount to a trust.[8]
Others
In most academic textbooks, there are usually a swath of "other" purpose trusts or purported purpose trusts that are held up as a residual anomalous category. The most commonly cited example is Re Thompson [1934] 342[9] where a gift to a friend of the testator for the promotion and furthering of fox hunting was upheld. It has been suggested academically that the case has "been elevated to a position of importance which it does not merit".[10]
In Re Endacott [1960] Ch 232 it was made clear that the existing exceptions at common law would not be extended; they were described as "troublesome, anomalous and aberrant".
Paul BW Chaplin has argued in the book "Purpose Trusts" (Butterworths 1999) that the courts took a wrong turn in the mid 20th century and ignored hundreds of previous years of judicial precedents in which purpose trusts of all kinds had been upheld as valid. He contends that the "beneficiary principle" has been misunderstood. His views have received support from Professor Jill Martin and others.
Characteristically, in those jurisdictions a non-charitable purpose trust requires a written trust instrument and the trust instrument must specify a protector or enforcer who will have locus standi to enforce the terms of the trust against the trustees. This role is created to address the concerns expressed by the courts as to how the courts would have power to control the trustees.
However, no real steps have been taken in any of those jurisdictions to address the fundamental conceptual issues of where the beneficial title to the trust assets should be regarded as residing whilst they form part of the trust fund. Arguably, if no other person is regarded as having a beneficial claim to the assets, they would be regarded as being owned solely by the trustees, which could have disastrous tax implications for the trustees.
In the United States, in 2015, the Nevada Legislature adopted legislation that now permits a "public benefits trust", which is defined as a trust that is not a charitable trust but that is "established to further one or more specifically declared religious, scientific, literary, educational, community development, personal improvement or philanthropic purposes. . . ."[11]
Special problems arise in connection with the holding of property by unincorporated associations of persons. Whereas a company has separate legal personality and can hold property, with certain statutory exceptions,[12] unincorporated associations of persons cannot. Accordingly, where an unincorporated association is formed for a non-charitable purpose (which is most often the case), a gift to an unincorporated association can fail as an invalid purpose trust.[13] However, the courts have usually tried to avoid such a result by construing the gift as a gift to the members of the unincorporated association.[14] The difficulty is that such a gift would then have to be construed as a distributive gift to the individual members, rather than a purposive gift for the objects of the unincorporated association. In Re Recher's Will Trust [1972] Ch 526 a more purposive approach was taken, and Brightman J held that a gift to The London and Provincial Anti-Vivisection Society was to be construed as a beneficial gift in favour of the members, not so as to entitle them to an immediate distributive share, but as an accretion to the funds of the society subject to the contract of the members as set out in the rules.[15] Further, it was held that such a construction would be possible whether the society was inward looking (i.e. existed to promote the interests of its members) or outward looking (i.e. existed to promote some external cause or purpose).
↑ See for example, Re Shaw [1957] 1 WLR 729, concerning the will of George Bernard Shaw - a provision to develop a new 40 letter alphabet was struck down as not being charitable, as defined by law, and the provision failed as a non-charitable purpose trust.
↑ Such as trade unions and friendly societies, for example (in the United Kingdom, see section 10 of the Trade Union and Labour Relations (Consolidation) Act 1992 and section 54 of The Friendly Societies Act 1974)).
↑ See for example Leahy v Attorney General for New South Wales [1959] AC 457
↑ See for example, Re Lipinski's Will Trusts [1976] Ch 235, where such a gift was upheld, even though the testator expressed that it was for a specific non-charitable purpose.
↑ As it happened, the Society had dissolved prior to Mr Recher's death, and the gift failed in any event. It has now been replaced by the National Anti-Vivisection Society
Related Research Articles
A trust is a legal relationship in which the legal title to property is entrusted to a person or legal entity with a fiduciary duty to hold and use it for another's benefit. In the Anglo-American common law, the party who entrusts the property is known as the "settlor", the party to whom the property is entrusted is known as the "trustee", the party for whose benefit the property is entrusted is known as the "beneficiary", and the entrusted property itself is known as the "corpus" or "trust property". With the strategic and legal use of Trusts, individuals can ensure that their children and grandchildren or chosen beneficiaries are able to benefit completely from the inheritance they want them to receive.
A will or testament is a legal document that expresses a person's (testator) wishes as to how their property (estate) is to be distributed after their death and as to which person (executor) is to manage the property until its final distribution. For the distribution (devolution) of property not determined by a will, see inheritance and intestacy.
An express trust is a trust created "in express terms, and usually in writing, as distinguished from one inferred by the law from the conduct or dealings of the parties." Property is transferred by a person to a transferee, who holds the property for the benefit of one or more persons, called beneficiaries. The trustee may distribute the property, or the income from that property, to the beneficiaries. Express trusts are frequently used in common law jurisdictions as methods of wealth preservation or enhancement.
In private international law, the public policy doctrine or ordre public concerns the body of principles that underpin the operation of legal systems in each state. This addresses the social, moral and economic values that tie a society together: values that vary in different cultures and change over time. Law regulates behaviour either to reinforce existing social expectations or to encourage constructive change, and laws are most likely to be effective when they are consistent with the most generally accepted societal norms and reflect the collective morality of the society.
Barclays Bank Ltd v Quistclose Investments Ltd[1968] UKHL 4 is a leading property, unjust enrichment and trusts case, which invented a new species of proprietary interest in English law. A "Quistclose trust" arises when an asset is given to somebody for a specific purpose and if, for whatever reason, the purpose for the transfer fails, the transferor may take back the asset.
A discretionary trust, in the trust law of England, Australia, Canada and other common law jurisdictions, is a trust where the beneficiaries and/or their entitlements to the trust fund are not fixed, but are determined by the criteria set out in the trust instrument by the settlor. It is sometimes referred to as a family trust in Australia or New Zealand. Where the discretionary trust is a testamentary trust, it is common for the settlor to leave a letter of wishes for the trustees to guide them as to the settlor's wishes in the exercise of their discretion. Letters of wishes are not legally binding documents.
In trust law, a beneficiary or cestui que use, a.k.a. cestui que trust, is the person or persons who are entitled to the benefit of any trust arrangement. A beneficiary will normally be a natural person, but it is perfectly possible to have a company as the beneficiary of a trust, and this often happens in sophisticated commercial transaction structures. With the exception of charitable trusts, and some specific anomalous non-charitable purpose trusts, all trusts are required to have ascertainable beneficiaries.
English trust law concerns the protection of assets, usually when they are held by one party for another's benefit. Trusts were a creation of the English law of property and obligations, and share a subsequent history with countries across the Commonwealth and the United States. Trusts developed when claimants in property disputes were dissatisfied with the common law courts and petitioned the King for a just and equitable result. On the King's behalf, the Lord Chancellor developed a parallel justice system in the Court of Chancery, commonly referred as equity. Historically, trusts have mostly been used where people have left money in a will, or created family settlements, charities, or some types of business venture. After the Judicature Act 1873, England's courts of equity and common law were merged, and equitable principles took precedence. Today, trusts play an important role in financial investment, especially in unit trusts and in pension trusts. Although people are generally free to set the terms of trusts in any way they like, there is growing legislation to protect beneficiaries or regulate the trust relationship, including the Trustee Act 1925, Trustee Investments Act 1961, Recognition of Trusts Act 1987, Financial Services and Markets Act 2000, Trustee Act 2000, Pensions Act 1995, Pensions Act 2004 and Charities Act 2011.
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Charitable trusts in English law are a form of express trust dedicated to charitable goals. There are a variety of advantages to charitable trust status, including exception from most forms of tax and freedom for the trustees not found in other types of English trust. To be a valid charitable trust, the organisation must demonstrate both a charitable purpose and a public benefit. Applicable charitable purposes are normally divided into categories for public benefit including the relief of poverty, the promotion of education, the advancement of health and saving of lives, promotion of religion and all other types of trust recognised by the law. There is also a requirement that the trust's purposes benefit the public, and not simply a group of private individuals.
The cy-pres doctrine in English law is an element of trusts law dealing with charitable trusts. The doctrine provides that when such a trust has failed because its purposes are either impossible or cannot be fulfilled, the High Court of Justice or Charity Commission can make an order redirecting the trust's funds to the nearest possible purpose. For charities with a worth under £5,000 and no land, the trustees may make the decision to redirect the trust's funds. The doctrine was initially an element of ecclesiastical law, coming from the Norman French cy près comme possible, but similar and possibly ancestral provisions have been found in Roman law, both in the Corpus Juris Civilis and later Byzantine law.
A purpose trust in English law is a trust created for the fulfillment of a purpose, not for the benefit of a person. These are normally considered invalid by the courts because they have no legally recognized beneficiaries, therefore nobody to enforce the trust, with the exception of charitable trusts, which are enforceable by Attorney General as they represent public interest. As well as charitable trusts, there are several exceptions to the rules against purpose trusts. If the requirement to fulfill a purpose is a request, rather than an obligation, the trust is valid; a trust will also be found valid if, while being for a purpose, it involves beneficiaries in some respect. Purpose trusts can also be valid if they are for the erection or maintenance of tombs and memorials, the maintenance of animals, and arguably the saying of masses, although these must all obey the rule against perpetuities and not continue for more than 21 years after the testator's death.
Resulting trusts in English law are trusts created where property is not properly disposed of. It comes from the Latin resultare, meaning to spring back, and was defined by Megarry VC as "essentially a property concept; any property that a man does not effectually dispose of remains his own". These trusts come in two forms: automatic resulting trusts, and presumed resulting trusts. Automatic resulting trusts arise from a "gap" in the equitable title of property. The equitable maxim "equity abhors a vacuum" is followed: it is against principle for a piece of property to have no owner. As such, the courts assign the property to somebody in a resulting trust to avoid this becoming an issue. They occur in one of four situations: where there is no declaration of trust, where an express trust fails, where there is surplus property, or upon the dissolution of an unincorporated association. Rules differ depending on the situation and the type of original trust under dispute; failed charitable trusts, for example, have the property reapplied in a different way from other forms of trust.
Leahy v Attorney-General for New South Wales is an Australian and English trusts law case involving a charitable trust, heard by the High Court of Australia in 1958, and the Privy Council in 1959. The proceeding concerned the validity a gift to an unincorporated body, concluding that gifts in trust "cannot be made to a purpose or to an object" except for charitable circumstances.
The beneficiary principle is a policy of English trusts law, and trusts in Commonwealth jurisdictions, that trusts which do not have charitable objects, as under the UK Charities Act 2006 sections 2 and 3, and also do not make the trust property available for the benefit of defined people, are void.
Re Endacott [1959] EWCA Civ 5 is an English trusts law case, concerning the policy of the "beneficiary principle". It held that outside of trusts for animals, graves and saying private masses no trusts can be made for purposes that are non-charitable.
Re Denley’s Trust Deed [1969] 1 Ch 373 is an English trusts law case, concerning the policy of the "beneficiary principle". It held that so long as the people benefitting from a trust can at least be said to have a direct and tangible interest, so as to have the locus standi to enforce a trust, it would be valid.
Re Recher's Will Trusts [1972] Ch 526 is an English trusts law case, concerning the policy of the beneficiary principle and unincorporated associations.
Under English law, an unincorporated association is a group of people who come together
for a common purpose
intending to create a legally binding relationship between themselves.
Re Astor’s Settlement Trusts [1952] Ch 534 is an English trusts law case, concerning the principle that non-charitable trusts must be for beneficiaries and not abstract purposes.
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