Non-Charitable Purpose Trusts

Non-charitable Purpose Trusts

Jude Puech

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Non-charitable Purpose Trusts

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These are trusts which do not benefit a human being, are not for a charitable purpose but benefit a purpose, for example, a trust to maintain a specific animal or the settler’s grave.

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So quite simply we can say that a non-charitable purpose trust is a trust which is set up to achieve a non-charitable purpose rather than to benefit a human beneficiary.

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There are four objections to purpose trusts. Firstly and most fundamentally the beneficiary principle. Every trust must have an object. There must be somebody in whose favour the court can decree specific performance. In Re Astor a trust inter alia for the preservation of the newspapers was void because there was no human beneficiary capable of enforcing it.

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And this is the point. Purpose trusts cannot exist in law because there is no one to force the trustees to carry them out. We’re back to basics. A trust involves the imposition of an obligation that the trustee can be compelled to carry out. Hence we need someone to enforce that obligation and this is the beneficiary principle. The lack of beneficiary causes purpose trusts to fail because there is no one to enforce the trust.

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With trusts for identifiable beneficiaries those beneficiaries can enforce the trustee’s obligations. With charitable trusts the Attorney General is charged with enforcement. With the trust in favour of non-human beneficiaries and non-charitable purposes there is no one who can enforce the obligations. Conceptually therefore these things ought not to be trusts and should be held void. In fact many cases to achieve objectives such as those set out earlier and similar ones have been held to be valid as trusts but unenforceable, hence their alternative name of trusts of imperfect obligation. We will consider these in a moment.

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As we have said, since Morris some purpose trusts have been accepted but before we look at them there are two snares to consider which the draftsman has to avoid. Firstly certainty of objects – the purpose, if accepted at all, must be certain else it will fail. For example, in Re Endacott the testator provided £20,000 for the purpose of providing “some useful memorial to myself”. The trust failed because of the lack of certainty of objects. The object was too wide and uncertain to fall within the anomalous class of cases. In Morice v Bishop of Durham “such objects of benevolence and liberality” were uncertain and the trust void.

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Likewise in Re Astor the objects of the trust included the maintenance of good understanding between nations and the preservation of the independence and integrity of the newspapers. The trust failed because firstly as the trust was for the benefit of non-charitable purposes, there was no one who could initiate proceedings against the trustees and therefore the trusts were void as being unenforceable and secondly the purposes were too uncertain. Thus if the purpose is vague the trust will fail. It is a sufficient ground by itself for failure of the trust.

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A further problem with purpose trusts is that of perpetuity. There are two perpetuity rules. Firstly, the rule against remoteness of vesting. The gift or interest must vest within the perpetuity period. For example, if a trust was set up to provide for the building and maintenance of a monument to the first resident of Newcastle to become a prime minister then this would raise problems of perpetuity. The first Newcastle prime minister could be tomorrow or in a thousand year’s time. Hence the gift might take effect outside the perpetuity period and therefore it would be void.

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The rule against remoteness of vesting is not really the issue with purpose trusts. The main problem is the rule against perpetual duration. Being non-charitable, all the trusts referred to in this section are subject to the rule against perpetual trusts. The policy of law is that capital cannot be tied up in trust for too long. Where purpose trusts have been allowed to succeed, in common with all private trusts they must be brought to an end within the perpetuity period. The capital must cease to be held and be distributed free of the trusts within the appropriate time limit. So the trust must be expressly or impliedly limited to the perpetuity period. This rule is known as the rule against perpetual duration, the rule against inalienability and the rule against perpetual trusts.

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The allowable perpetuity periods are at common law and under the Perpetuities and Accumulations Act 1964. The common law perpetuity period is measured by a human life or lives in being together with a further 21 years.

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The difficulty with the common law position is identifying the life or lives in being. The life or lives chosen need not take any benefit under the gift. Consequently settlers are able to use what is known as a royal lives clause. This is a clause which specifies the perpetuity period by reference to the royal family. In using royal lives clauses it is clear from the wording of the instrument in question that the royal lives are intended to be the lives in being for the purposes of the perpetuities rule. However, in other cases it can be far more difficult to decide who is to be taken as the life and being for the rule. Generally every person who is living at the date of the gift and is mentioned in it or whose existence is implied by it is a life in being. Thus a gift to my grandchildren necessarily presupposes the existence of children and therefore those children who are alive at the date of the testator’s death will be taken to be lives in being for the purpose of the perpetuity rule.

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Where no lives in being are specified, as is generally the case with purpose trusts, the period is simply 21 years and so if the trust might exceed this period then it is void.

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Because section 3 of the Perpetuities and Accumulations Act 1964 does not apply to purpose trusts there is no wait and see rule. Consequently a purpose trust will be void from the outset if from the start it cannot be said for certain that it will not last beyond the allowed period. Also by section 15 ss 4 of the Act it appearsto be the case that the statutory period of 8 years is not available to purpose trusts.

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Consequently the position for purpose trusts appears to be firstly if the trust purports to be perpetual, i.e. if the trust purports to tie up the capital for ever, then it will fail. However, if the trust contains an express limitation that it will not exceed 21 years or it contains a vague restriction to that effect, for example in Re Hooper a gift to trustees for the maintenance of family graves and monuments “so long as they can legally do so”was held valid for 21 years. A similar provision in Pirbright v Salweywas also upheld. If the trust does contain such a restriction then it will be limited to a period of 21 years and will not infringe the perpetuity rule.

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If a purpose trust contains an express perpetuity clause stating that the period will be one of a life or lives in being plus 21 years, it will be capable of lasting for the full common law period. For example, a trust set up to maintain the testator’s tomb until 21 years after the death of the last surviving descendant of King George VI living at the date of my death. This would enable the trust to continue for quite a long time as there are several young children in that group.

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The settler can expressly state that the trust is limited to a nominated life and being plus 21 years or just 21 years for example as in Re Hooper, but if no stipulation as to theperiod is made, the trust will be void unless it must necessarily determine within the perpetuity period, which in most cases will mean 21 years because there will not be a relevant life. If the trust might exceed this period, then it will be void.

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The courts might imply limitation to the period. For example, in Mussett v Bingle no periodwas specified and the trust involved the building of a monument. This was held valid as it appears that it was assumed that the monument would be erected within 21 years. However a further provision as to maintenance of the monument was void because no perpetuity period had been stipulated.

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With animals judicial notice has been taken of the fact that the expected life of the animal in question would not exceed 21 years. For example, in Re Haines the court took notice of the approximate lifespan of a cat being 16 years. In Re Dean a testator left £750 per annum for the maintenance of his horses and hounds for a period of 50 years. This was upheld despite being well outside the perpetuity period and it must be incorrect. Similarly in Pettingall v Pettingallthe testator left £50 per annum to his executor to maintain his favourite black mare. The trust was held valid. It was to last for the animal’s lifetime. Horses can certainly live for more than 21 years so the decision that the trust was to last for the horse’s lifetime could clearly contravene the perpetuity rule.

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Courts will strike down on the grounds of public policy trusts for capricious purposes. That is silly fanciful eccentric purposes of no use toanyone. In Brown v Burdett a house was left on trust to brick up the doors and windows for a period of 20 years. This was held void. In McCaig large sums of money were allocated to building memorials to various family members. The judge described this as a sheer waste of money.

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The beneficiary principle denies the existence of purpose trusts. However, such trusts do exist. Before Re Astor, Re Endacottetc. the courts failed to take the point regarding the beneficiary principle and allowed purpose trusts to be effective. Re Endacott categorized purpose trusts which had been allowed to succeed into 5 groups. Firstly trusts for the erection or maintenance of monuments or graves. For example Re Hooper involved money for the upkeep of family graves and monuments. The monument doesn’t have to be for the testator himself however. In Mussett v Bingle funds were left to erect a monument “to my wife’s first husband”. It seems that only fairly modest memorials will be allowed as in the McCaig cases for example expensive statues do not fall within this group. They are considered capricious and wasteful and in Re Endacott £20,000 to the North Tawton Parish Council to build some useful memorial to myself was too wide and uncertain to fall within the exceptions but a further objection was the sum of money involved.

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Secondly trusts for the saying of masses are valid purpose trusts. However, if said in public they would nowadays be considered charitable. And the third category under Re Endacott are trusts for the maintenance of particular animals, for example Re Dean and Re Pettingall, which we looked at earlier.

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Fourthly, trusts for the benefit of unincorporated associations – the court thought this a doubtful group and we will look at trusts for unincorporated associations a little later. And finally miscellaneous cases not within the above, most notably Re Thompson, a trust to further foxhunting, was considered valid.What all of these have in common is that there is no human beneficiary and therefore no one who can enforce the trustees’ obligations. However, the early cases did not take this point and they allowed the trusts to be effective but binding in honour only. Hence they are called trusts of imperfect obligation. They are valid but unenforceable. The donee is merely subject to a moral obligation to enforce.

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The judicial attitude to the trusts changed following the judgement of Roxburgh in Re Astor, the facts of which we looked at earlier but to recap the trust failed for uncertainty and there was no one who could initiate proceedings against the trustees and therefore the trust was void for being unenforceable. Indirect enforcement, for example as in Re Thompson, by the later or default beneficiary would not suffice as this beneficiary has an interest in seeing the duty not being performed rather than enforcing it. Commenting on the earlier cases where such trusts had been allowed but were binding in honour, Justice Roxburgh said that they were anomalous exceptions to the rule, concessions to human weakness and kindness. The decision of Re Astor was supported by the Court of Appeal in Re Endacott and must now be taken as the correct rule. Both these cases assert the strict principle known as the beneficiary principle that trusts for non-charitable purposes cannot be valid trusts due to the lack of human beneficiary to enforce them.

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Cases like Re Thompson and the others which held to the contrary must now be seen as aberrations but in a legal system which depends on precedent it is necessary to know how far they can be relied upon despite the new rule. In Re Endacott where the testator left funds “for the erection of some useful memorial to myself” the Court of Appeal decided that this was not a charitable gift. Could it exist as a purpose trust therefore? The Court of Appeal reviewed the law and agreed with the conclusion reached by Justice Roxburgh in Re Astor. Lord Justice Harman said “the cases stand by themselves and ought not to be increased in number nor indeed followed except where the one is exactly like the other. So the old cases should not be extended nor indeed followed except where the one is exactly like the other. Obviously this raises problems of degree of similarity.

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Therefore if a disposition is construed as a purpose trust it is void under the beneficiary principle unless it is one of the concessions. Is there any way in which the disposition could be construed so as to prevent the gift failing? Firstly consider whether the trust can be construed as for the benefit of persons and not for purposes. Not all purpose trusts violate the beneficiary principle. For example in Re Denley land was given for the purpose of a sports groundprimarily for the benefit of employees of a company. This was a purpose trust but Justice Goff held that it was a trust for the benefit of the employees. Under Re Denley a gift that appears to be simply for a non-charitable purpose will be enforceable if ascertainable people derive sufficient benefit from the carrying out of that purpose.

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In Denley itself the employees of the company were held to benefit sufficiently directly from the provision of a sports ground for their use to give them locus standi to enforce the trust, thereby saving it from being struck down due to unenforceability. Re Denley involved a large class of individuals never intended to have ownership of the property but rather a right to enforce performance of the trustee’s duties. However, compare this to the situation where there is a gift to a named individual or a small class of identified beneficiaries who could be intended as having absolute ownership of the property though the settler qualifies this by requiring the property to be used for a specified purpose.

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According to Re Sanderson, if property be given and a special purpose be assigned to that gift, then the court always regards the gift as absolute and the purpose merely as the motive of the gift.

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The Sanderson construction was applied in Re Andrews which involved a trust fund set up to educate 7 children of a deceased clergyman. Once their education was over and a sum remained, the question arose over the disposal of the surplus. The court held that this was an absolute gift with the reference to education merely being an expression of motive of the gift. The children were entitled in equal shares.

Re Osoba concerned a gift for the maintenance and education of the testator’s daughter up to university level. This was completed in 1975 and a surplus remained. The Court of Appeal held that the testator’s intention was to provide an absolute gift with the reference to the maintenance and education being expressions of motive. However, there is no guarantee that the purpose will be carried out.

Re Bowes involved a trust to spend money on planting trees on an estate. This was held to belong to the owners absolutely with the motive of having trees planted so the owners could have the money to spend as they wished.

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Other methods of circumventing the rule against non-charitable purpose trusts include the use of conveyancing devices. Re Tyler involved a gift of property to charity conditional on the charity fulfilling the non-charitable purpose which was maintaining the family vault with a gift over to another charity if the purpose was not carried out. This is a cumbersome and expensive way around achieving a non-charitable purpose and has to be worth the charity’s while in carrying out the non-charitable purpose. Alternatively, the disposition could be drafted as a power rather than a trust, for example, a power to apply the income for certain purposes. This would be valid if certain and not perpetuitous but there is no duty to carry out the purpose. Alternatively the settler could give the recipient a mandate to use the money in a certain way. If the purpose is not carried out, the settler can demand its return but a mandate cannot be set up in death. And finally the settler could set up a company to achieve a non-charitable purpose. Incorporation is more generally an issue with unincorporated associations which we shall look at now.