Everything about Purpose Trust totally explained
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're 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, although there are certain historical exceptions to this, and some countries have modified the law in this regard by
statute. The court won't 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 isn't 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.
The beneficiary principle
A trust is, at its root, an obligation. And accordingly, "every [non-charitable] trust must have a definite object. There must be someone in whose favour the court can decree performance." 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 difficult ascertaining beneficiaries for the court to enforce the trust in favour of.
Uncertainty
Where the objects of a trust are a purpose rather than an individual or individuals, there's much greater risk that a trust wouldn't 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, although subsequent cases have cast doubt on the correctness of that reasoning.
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 wouldn't have done so had it not been bound by
Pilbright 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.
Animals
Trusts for the care of specific animals have been upheld. In
Re Dean (1889) 41 Ch D 552, North J upheld a trust for maintenance of horses and hounds for 50 years relying upon upon much older authorities and the monument cases.
Quistclose trusts
Historically,
Quistclose trusts have sometimes been considered to be purpose trusts, but the modern view is that they're conventional trusts for ascertainable beneficiaries, but with a specific condition (the failure of the purpose) for reversion.
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 where a gift to
Trinity Hall, Cambridge for the promotion and furtherance of
fox hunting was upheld. It has been suggested academically that the case has "been elevated to a position of importance which it doesn't merit".
In
Re Endacott [1960] Ch 232 it was made clear that the existing exceptions at common law wouldn't be extended; they were described as "troublesome, anomalous and aberrant".
Statutory exceptions
offshore jurisdictions have enacted
statutes which expressly validate non-charitable purpose trusts outside of the small group of specific exceptions recognised at
common law. Some of the jurisdictions which have done so include the
Bahamas,
Bermuda, the
British Virgin Islands and the
Cayman Islands.
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'd be regarded as being owned solely by the trustees, which could have disastrous tax implications for the trustees.
Unincorporated associations
unincorporated associations of persons. Whereas a
company has separate legal personality and can hold property, with certain statutory exceptions,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. 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. 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. Further, it was held that such a construction would be possible whether the society was inward looking (ie. existed to promote the interests of its members) or outward looking (ie. existed to promote some external cause or purpose).
Footnotes
Further Information
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