Purpose trusts in English law

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In English law, a purpose trust 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 the Attorney General as they represent the public interest. As well as charitable trusts, there are several exceptions to the rule 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 (assuming such memorials are not overly grandiose), 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.

Contents

Definition

A purpose trust is a trust created for the fulfilment of a purpose, not for the benefit of a person. While charitable trusts are also for the benefit of an abstract purpose, charitable purposes for the public benefit are an exception to the standard rule regarding purpose trusts, which is that they are void. [1] The invalidity of purpose trusts is commonly said to have been set in Morice v Bishop of Durham . [2] [3] In Leahy v Attorney-General for New South Wales , [4] Lord Simonds set the principle that:

A gift can be made to persons (including a corporation) but it cannot be made to a purpose or to an object; so, also a trust may be created for the benefit of persons as cestui que trust but not for a purpose or object unless the purpose or object be charitable. For a purpose or object cannot sue, but, if it be charitable, the Attorney General can sue to enforce it. [5]

Alastair Hudson, Professor of Equity and Finance Law at the University of Exeter, argues that this is an example of the "strict" rule against purpose trusts. A looser application was found in Cocks v Manners , [6] a case with almost identical facts, where the court decided that the trust was valid as a gift to every member of the order individually, with the Mother Superior acting as a trustee. [7]

Objections

There are a variety of objections to the idea of purpose trusts being valid. Firstly, English trusts law requires there be certainty of what the trust's goal is; most purpose trusts are for vaguely worded requests, such as the "maintenance of good relations between nations [and] the preservation of the independence of newspapers" found in Re Astor . [8] Secondly, there is a general principle that there must be ascertainable beneficiaries. This is because, as said in Morice, "Every trust (other than a charitable one) must have a definite object. There must be somebody, in whose favour the court can decree performance". If there are no beneficiaries, nobody can enforce the trust in the event that the trustees fail to carry out their duties. [9] The third objection is that of perpetuity; a trust cannot exist for all time. The standard rule is that no trust can be drafted so that any interest lasts for longer than the life of the beneficiary, plus 21 years. Therefore, no trust can be found valid if its interests last longer than this period. Purpose trusts, without beneficiaries, would cause unnecessary confusion if found valid because there is no marker by which to measure its existence. Purpose trusts may also be held to be invalid as a matter of public policy, where the courts conclude that the purpose is "eccentric or capricious and the court regards it as useless". [10]

Evasions and exceptions

There are several ways to evade the rules against purpose trusts. In Re Denley , [11] land was given in trust to provide a sports ground "primarily for the benefit of the employees of [a certain] company and secondarily for the benefit of such other persons as the trustees shall allow to use the same". Although for the benefit of a purpose, the wording identified a class of beneficiaries, which allowed the courts to find it valid. One way to evade the rule, therefore, is to create a trust that benefits a group of people but is confined to a purpose. The judgment of Lloyd LJ, given in R v District Auditor, ex parte West Yorkshire Metropolitan County Council , [12] seems to indicate that the test of certainty for Denley trusts is the same as for discretionary trusts. [13] A second way of evading the rules is found in Re Tyler , [14] where money was donated to a charity, with a request to maintain the donor's family vault; if this vault was not maintained, the money would go elsewhere. Because there was no obligation to maintain the vault, it was not considered a purpose trust. [15] The existence of the Denley exception has enabled the purpose trust to be proposed as one way of holding rights associated with an unincorporated association. [16]

In addition, the courts have recognised exceptions to the rules against purpose trusts. The erection and maintenance of tombs and monuments is a valid trust, as in Musset v Bingle ; [17] this will not be held valid if the gift violates the perpetuity rule, or if the scale of the monument is "capricious and wasteful". [18] A good illustration of a capricious trust is provided by Brown v Burdett. [19] There, the expressed purpose of the trust was to block up the windows and doors of a house for 20 years. [20] Trusts to maintain animals may also be valid, as in Pettingall v Pettingall . [21] Again, this is limited to the 21 years after the donor's death permitted by trusts law. [18] Historically, religious masses have been considered an exception to the rules against purpose trusts, but in Re Hetherington , [22] the saying of a public mass was recognised as a valid charitable cause. Private masses have been held to be capable of being valid non-charitable purpose trusts in Re Endacott [23] [24]

Related Research Articles

<span class="mw-page-title-main">Trust law</span> Three-party fiduciary relationship

A trust is a legal relationship in which the holder of a right gives it to another person or entity who must keep and use it solely for another's benefit. In the Anglo-American common law, the party who entrusts the right is known as the "settlor", the party to whom the right 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". A testamentary trust is created by a will and arises after the death of the settlor. An inter vivos trust is created during the settlor's lifetime by a trust instrument. A trust may be revocable or irrevocable; an irrevocable trust can be "broken" (revoked) only by a judicial proceeding.

<span class="mw-page-title-main">Charitable trust</span> Irrevocable trust established for charitable purposes

A charitable trust is an irrevocable trust established for charitable purposes and, in some jurisdictions, a more specific term than "charitable organization". A charitable trust enjoys a varying degree of tax benefits in most countries. It also generates good will. Some important terminology in charitable trusts is the term "corpus", which refers to the assets with which the trust is funded, and the term "donor", which is the person donating assets to a charity.

<span class="mw-page-title-main">Express trust</span>

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.

<span class="mw-page-title-main">Purpose trust</span>

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.

<span title="Anglo-Norman-language text"><i lang="xno">Cestui que</i></span> Concept in English law regarding beneficiaries

Cestui que is a shortened version of cestui a que use le feoffment fuit fait, literally, the person for whose use/benefit the feoffment was made, in modern terms a beneficiary. It is a Law French phrase of medieval English invention, which appears in the legal phrases cestui que trust, cestui que use, or cestui que vie. In contemporary English the phrase is also commonly pronounced "setty-kay" or "sesty-kay". According to Roebuck, Cestui que use is pronounced. Cestui que use and cestui que trust are often interchangeable. In some medieval documents it is seen as cestui a que. In formal legal discourse it is often used to refer to the relative novelty of a trust itself, before that English term became acceptable.

An offshore trust is a conventional trust that is formed under the laws of an offshore jurisdiction.

<span class="mw-page-title-main">English trust law</span> Creation and protection of asset funds

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 a growing body of 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.

<span class="mw-page-title-main">Three certainties</span> Rule within English trusts law

The three certainties refer to a rule within English trusts law on the creation of express trusts that, to be valid, the trust instrument must show certainty of intention, subject matter and object. "Certainty of intention" means that it must be clear that the donor or testator wishes to create a trust; this is not dependent on any particular language used, and a trust can be created without the word "trust" being used, or even the donor knowing he is creating a trust. Since the 1950s, the courts have been more willing to conclude that there was intention to create a trust, rather than hold that the trust is void. "Certainty of subject matter" means that it must be clear what property is part of the trust. Historically the property must have been segregated from non-trust property; more recently, the courts have drawn a line between tangible and intangible assets, holding that with intangible assets there is not always a need for segregation. "Certainty of objects" means that it must be clear who the beneficiaries, or objects, are. The test for determining this differs depending on the type of trust; it can be that all beneficiaries must be individually identified, or that the trustees must be able to say with certainty, if a claimant comes before them, whether he is or is not a beneficiary.

<span class="mw-page-title-main">Charitable trusts in English law</span> Express trusts dedicated to charitable goals in English law

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 creation of express trusts in English law must involve four elements for the trust to be valid: capacity, certainty, constitution and formality. Capacity refers to the settlor's ability to create a trust in the first place; generally speaking, anyone capable of holding property can create a trust. There are exceptions for statutory bodies and corporations, and minors who usually cannot hold property can, in some circumstances, create trusts. Certainty refers to the three certainties required for a trust to be valid. The trust instrument must show certainty of intention to create a trust, certainty of what the subject matter of the trust is, and certainty of who the beneficiaries are. Where there is uncertainty for whatever reason, the trust will fail, although the courts have developed ways around this. Constitution means that for the trust to be valid, the property must have been transferred from the settlor to the trustees.

In English law, secret trusts are a class of trust defined as an arrangement between a testator and a trustee, made to come into force after death, that aims to benefit a person without having been written in a formal will. The property is given to the trustee in the will, and he would then be expected to pass it on to the real beneficiary. For these to be valid, the person seeking to enforce the trust must prove that the testator intended to form a trust, that this intention was communicated to the trustee, and that the trustee accepted his office. There are two types of secret trust — fully secret and half-secret. A fully secret trust is one with no mention in the will whatsoever. In the case of a half-secret trust, the face of the will names the trustee as trustee, but does not give the trust's terms, including the beneficiary. The most important difference lies in communication of the trust: the terms of a half-secret trust must be communicated to the trustee before the execution of the will, whereas in the case of a fully secret trust the terms may be communicated after the execution of the will, as long as this is before the testator's death.

<span class="mw-page-title-main">Resulting trusts in English law</span>

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.

Tracing is a procedure in English law used to identify property which has been taken from the claimant involuntarily or which the claimant wishes to recover. It is not in itself a way to recover the property, but rather to identify it so that the courts can decide what remedy to apply. The procedure is used in several situations, broadly demarcated by whether the property has been transferred because of theft, breach of trust, or mistake.

Discretionary trusts and powers in English law are elements of the English law of trusts, specifically of express trusts. Express trusts are trusts expressly declared by the settlor; normally this is intended, although there are situations where the settlor's intentions create a trust accidentally. Normal express trusts are described as "fixed" trusts; the trustees are obliged to distribute property, with no discretion, to the fixed number of beneficiaries. Discretionary trusts, however, are where the trustee has discretion over his actions, although he is obliged to act. The advantages of discretionary trusts are that they provide flexibility, and that the beneficiaries hold no claim to the property; as such, they cannot seek to control it, and it cannot be claimed for their debts. A power, or "mere power", on the other hand, is where not only does the holder have discretion over his actions, he has discretion over whether to act in the first place.

<i>Leahy v Attorney-General (NSW)</i> Judgement of the High Court of Australia

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.

Morice v Bishop of Durham [1805] EWHC Ch J80 is an English trusts law case, concerning the policy of the beneficiary principle.

<i>Re Endacott</i>

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.

<i>Re Denleys Trust Deed</i>

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.

Unincorporated associations are one vehicle for people to cooperate towards a common goal.

References

  1. ↑ Edwards (2007) p.187
  2. ↑ (1804) 9 Ves 399
  3. ↑ Pawlowski (2007) p.440
  4. ↑ [1959] AC 457
  5. ↑ Hudson (2009) p.173
  6. ↑ [1871] LR 12 Eq 574
  7. ↑ Hudson (2009) p.174
  8. ↑ [1952] 1 All ER 1067
  9. ↑ Edwards (2007) p.188
  10. ↑ Edwards (2007) p.189
  11. ↑ [1968] 3 All ER 65
  12. ↑ [1986] RVR 24
  13. ↑ Edwards (2007) p.190
  14. ↑ [1891] 3 Ch 252
  15. ↑ Edwards (2007) p.191
  16. ↑ Gardner (1992) p.42
  17. ↑ [1876] WN 170
  18. 1 2 Edwards (2007) p.192
  19. ↑ Watt, Gary (2019). "Purpose Trusts". Equity & Trusts Law Directions (6th edn). Oxford University Press. p. 150. doi:10.1093/he/9780198804703.001.0001. ISBN   9780198804703.
  20. ↑ Watt, Gary (2019). Professor. Oxford University Press. p. 150. doi:10.1093/he/9780198804703.001.0001. ISBN   9780198804703.
  21. ↑ (1842) 11 LJ Ch 176
  22. ↑ [1989] 2 All ER 129
  23. ↑ [1960] Ch 232
  24. ↑ Virgo; "The Principles of Equity and Trusts" OUP 2012

Bibliography

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