VII - Non charitable purpose Trusts

Question 1

What is the beneficiary principle?

Answer 1

a trust without a beneficiary is void. Certainty of objects requires us to identify who the beneficiaries are, whereas the beneficiary principle holds that there must be a beneficiary for there to be a trust, cannot have a trust for an abstract purpose.

Question 2

Re Astor’s Settlement

Answer 2

concerning the principle that non-charitable trusts must be for beneficiaries and not abstract purposes.

Per Roxburgh J:

“Prima facie, therefore, a trustee would not be expected to be subject to an equitable obligation unless there was somebody who could enforce a correlative equitable right”

Facts: He had wished to create a trust for the ‘maintenance… of good understanding… between nations’ and ‘the preservation of the independence and integrity of newspapers’ with money from the shares he owned in his newspaper The Observer. The will was challenged on the basis that a trust for an abstract purpose, rather than for real people, could not be valid.

Held: Roxburgh J held that the trust failed because of the lack of beneficiaries, and it was uncertain.

Question 3

Re Endacott

Answer 3

Re Endacott [1960] Ch 232, per Lord Evershed MR

“a trust by English law, not being a charitable trust, in order to be effective, must have ascertained or ascertainable beneficiaries”

Question 4

Morice v Bishop v Durham

Court of Chancery

Answer 4

Facts: The testator purported to make a trust for such objects of benevolence and liberality as the trustee in his own discretion shall most approve of. The word liberality might have meant drunkenness, so terms ought probably not to be enforced too. As it was unclear what settlor intended, the court held that the trust failed and there was a resulting trust to the legatee. Concern here: to ensure the courts can ensure the administration of the trust. If the intention of settlor cannot be gleaned by trust instrument, the trust must fail for uncertainty.

“If there be a clear trust but for uncertain objects, the property that is the subject of the trust is undisposed of and the benefit of such trust must result to those to whom the law gives the ownership in default of disposition by the former owner.”

Question 5

Re Astor’s Settlement

Question 6

Mussett v Bingle

Answer 6

1. Perpetuity

testator left £300 for the erection of a monument and £200 for maintaining it. Request for 300 was okay but the 200 was void for perpetuity.

Question 7

Re Hooper

Answer 7

1. Perpetuity

trust to maintain a grave for so far as trustees can do so was valid but only for 21 years old.

Question 8

Re Haines

Answer 8

1. Perpetuity

judicial notice taken of the fact that a cat cannot live longer than 21 years and therefore trust for a specific cat can be valid. It has now been found that cats do live longer than 21 years. Open question as to whether a trust for cat living longer than 21 years can now be valid. Trust to look after a pet tortoise void for perpetuity. But they tend to live for 200 years, this is longer than the 21 year period which is addressed by the current law.

Funds for care of specific animal such as cat or horse after testator’s death – generally held for 21 years perpetuity year period. This assumes that animal will not live longer than 21 years

Question 9

Brown v Burdett

Answer 9

1. Capriciousness

Property not be tied up in trust for useless or capricious purposes, key case:

‘I think I must “unseal” this useless, undisposed of property.’

Law concerned to stop useless trusts such as this.

Question 10

What interpretive devices do the courts use to uphold trusts (which at first sight appear to be NCPTs)?

Answer 10

1. Absolute gifts of property with a motive
2. Trusts with “indirect beneficiaries”

Question 11

Re Bowes

Answer 11

1. Absolute Gifts of Property with a Motive :interpretive device

Concerning the policy of the “beneficiary principle”. It held that a trust which uses words relating to a purpose of doing something, but ultimately for the benefit of a group of people, can be construed as being for the benefit of those people.

Facts: John Bowes in his will left his estate to the Earl of Strathmore for life, and then the rest in tail. But included, was a gift of £5000 to the trustees for ‘planting trees for shelter on the Wemmergill estate’. There was much more money than needed for planting trees.

Held: North J held that the trust was for the benefit of the owners of the estate. Hence the residents could use the surplus money in the way they chose.

Even though looks like a trust for purposes, it is construed for benefit of land upon which the trusts are planted. Not a trust for abstract purpose but for persons so within beneficiary principle and valid.

Question 12

Re Osoba [1979]

Answer 12

Concerning the construction of a trust to benefit people, rather than a purpose.

Facts: Residue of testator’s estate upon trust for the ‘training of my daughter up to university age’.

Question 13

What happens where it is clear that the settlor did not intend to make a gift?

Answer 13

The settlor did not intend the person to take a beneficial interest in the property.

Question 14

Re Denley

First instance = weak precedent

Answer 14

1. Trusts with ‘indirect beneficiaries’

Goff J 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.

Facts: the settlor conveyed a plot of land to the trustees:

• for the purposes of a recreation or sports ground primarily for the benefit of the employees of the company and secondarily for the benefit of such other…persons…as the trustees may allow.
• The settlor also stipulated that the trust was to last for a specific period only, after which the land was to be given to the General Hospital Cheltenham

It was clear from the trust deed, that the employees were not permitted to take beneficial interest in land. The settlor did not give the whole trust property to the employees but gave them it only for a short time and then it goes to the hospital. Therefore, not possible to construe the trust as Re Sober had been. Nevertheless, Goff upheld the trust that it was a trust for indirect beneficiaries: employees.

Goff J-

• ‘in my judgment the beneficiary principle of In Re Astor’s Settlement…is confined to purpose 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…’

Held: For Goff, the fact the employees benefitted from the trust, the fact they benefitted even indirectly was sufficient to make this a trust for persons. Goff took the view that the settlor intended the employees to standing for the trust. Due to this, they had standing, this satisfied requirement of the beneficiary principle. Even those beneficiaries do not have beneficial interest in property, they have standing so this did not fall off far from beneficial principle so this can be upheld.

Question 15

Goff J

In Re Denley:

Answer 15

Goff J held that the trust was valid, because it could be construed as being ultimately for the benefit of people and thus made to work.

“Where there is a purpose trust which would benefit individuals, where that benefit is “indirect or intangible” this will invalidiate the trust.

But Re Denley was different ebcause the trust deed: expressly states that…the employees of the company shall be entitled to the use and enjoyment of the land.”

Question 16

Is Re Denley a strong precent?

Answer 16

THIS IS A FIRST INSTANCE DECISION – THEREFORE, WEAK PRECEDENT. ALTHOUGH FOLLOWED IN LIPINSKI THIS IS ALSO FIRST INSTANCE. THESE ARE BOTH OLD CASES. THIS IS A WEAK PRECEDENT.

Question 17

Re Lipinski’s Will Trusts

Answer 17

Oliver J adopting reasoning of Goff in Re Deneley: held it was valid.

There is a “clear distinction” between a case where a purpose is “clearly intended” for the ascertainable beneficiaries, and where no beneifciary is intended.

Facts: The testator bequeathed his residuary estate to trustees for the Hull Judeans (Maccabi) Association:

‘[I]n memory of my late wife to be used solely in the work of constructing the new buildings for the association and/or improvements to the said buildings.’

Question 18

What do the cases of both Re Denley and Re Lipinski’s Will Trust have in common?

Answer 18

In both cases, the courts have found beneficiaries to enforce the trust. Some textbooks say that this is an exception to the beneficiary principle. But courts expressly find there are beneficiaries who can enforce the trusts in these cases even though not beneficially entitled to trust property. Therefore, the textbooks are not right.

Question 19

1. Exceptional Cases Upholding Purpose Trusts

Answer 19

1. Testamentary trusts for the creation and maintenance of tombs and monuments
2. Testamentary trusts for the care of specific animals
3. Testamentary trusts for saying masses in private
4. Testamentary trusts for the promotion of fox-hunting

Question 20

Re Hooper

Answer 20

1. Testamentary trusts for the creation and maintenance of tombs and monuments
   * The testator bequeathed £1000 to trustees for the care and upkeep of the graves and monuments of his parents, his wife, his two daughters and his son. The testator stipulated that the trustees were to maintain the monuments “so far as they legally can do so”. The testator died in 1929 and the question arose as to whether this was a valid trust.

Maugham J held the trust valid for a period of 21 years from the death of the testator. This is within the perpetuity period; the terms of trust are certain – use money to maintain grave. This case falls within the category of exceptional cases where even though it is a non-charitable purpose trust, the law will hold it valid within perpetuity period (21 years).

Question 21

Re Endacott

Answer 21

where a bequest to leave £60,000 to the ‘North Tawton Parish Council for the purpose of providing some useful memorial to myself’ was held not to be valid as it was too vague.

Question 22

Pettingall v Pettingall

Answer 22

Testamentary trusts for the care of specific animals

A testator made the following bequest by his will: that on his death, £50 per annum will be paid for her keep in a park and she shall never been ridden or put in harness.

Knight Bruce V-C decreed:£50 a year should be paid to the executor during the life of the mare, or until further order; he undertaking to maintain her comfortably; with liberty for all parties to apply.

Held: The trustee makes an undertaking before the court (£50 to look after mare to keep in park, keep off shoes etc), and other people entitled to the testators estate will have right to sue trustee to ensure the £50 is used for this purpose.

Question 23

Re Dean

Answer 23

1. Testamentary trusts for the care of specific animals

Facts: A testator charged his freehold estates with the payment of £750 per annum to his trustee for the period of 50 years if any of his horses and hounds should so long live and declared that the trustees should apply the money in the maintenance of his houses and hound.

Norton relied on the monument case to say that in certain trusts, they do not require a beneficary to be valid. In this case, testator limited the life of trust to 50 years if any animals lived so long. This is longer than the 21 years. But still held it was valid: here testator limited it to 50 years so no perpetuity problem, typical period is for 21 years so highly unlike that trust will be held valid for 50 years in the future. This is precedent in validity of trust but questionable with perpetuity period.

It is said that it is not valid; because (for this is the principal ground upon which it is put) neither a horse nor a dog could enforce the trust; and there is no person who could enforce it. It is obviously not a charity, because it is intended for the benefit of the particular animals mentioned and not for the benefit of animals generally.

the testator must be careful to limit the time for which it is to last,”

Question 24

Bourne v Keane

Answer 24

1. Testamentary trusts for saying masses in private

The testator bequeathed the estate to fathers for saying masses in private. This bequeath was not charitable because it was said in private. First, for it to be a charity, it needs to be said in public. HL held: valid as non-charitable purpose trust, albeit with little discussion of the point.

However Lord Buckmaster had little discusssion of the point.

Question 25

Re Thompson

Answer 25

1. Testamentary trusts for the promotion of fox-hunting

testator bequeathed 100 to trustee to further fox hunting. Trust clear in nation – does not fail for want of uncertainty. Held: this could be a valid non charitable purpose trust.

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”.

In this case case the legacy should be applied by him otherwise than towards the promotion and furthering of fox-hunting, the residuary legatees are to be at liberty to apply [to the court for enforcement of the trustee’s undertaking

This is a modern use of Pettingall order. This is little of practical guidance as long as fox hunting is illegal.

Question 26

Re Endacott

Answer 26

it was made clear that the existing exceptions at common law would not be extended; they were described as “troublesome, anomalous and aberrant”

Question 27

Reform of Non-Charitable Purpose Trusts: An Enforcer Principle?

Answer 27

There are certain cases which on their face might look like a trust for purpose, but the law might construe them as being trusts for beneficiaries. These cases can be accepted as long as they are drafted clearly (Clauson J in Re Thompson – gift defined with sufficient clearness) as long as it is clear and falls within the list and accords to Pettingall as to enforcement, there are not many problems which the beneficiary principle has to solve.

The case towards allowing NCPT has been quite strong, particularly in last 20 years, the beneficiary principle is actually old fashioned. There have been suggestions to remove this principle and allow the creation of trusts whether abstract or not. If one takes out the beneficiary, the trust instead should include a clause which says X (some third party) has ability to sue trustee to enforce terms of trust. The clause would mean that the third parties are not beneficially entitled, but it would be their job to ensure that the terms of the trust are complied with – the enforcer principle.

The Pettingall order can be viewed as a version of this, i.e. that the trustee makes an order and the residuary legatee has a right to sue the trustee. That way, objections arising from NCPTs are sidestepped. The problem of enforceability can be solved by the enforcer principle.

Question 28

DJ Hayton,

Developing the Obligation Character of the Trust

Answer 28

There is an obligation character of a trust argued in favour of recognising an enforcer principle in English law which might permit non charitable purpose trust:

• He says that NCPT are recognised in places like the Cayman Island, and that if the UK wants to keep its edge in the trust market, it needs to stay up to date with offshore jurisdictions. If UK wants to stay competitive, it needs to recognise NCPT otherwise the UK loses out on trust business.
• Hayton draws an analogy with the AG who can enforce Charitable trusts, that they can enforce charitable trusts although is not beneficially interested in this property.
• Enforcer need not be beneficially entitled – objects under a discretionary trust are not beneficially entitled but can still sue for enforcement.
  
  • The law of trusts already recognises that someone can enforce the terms of the trust without being beneficially entitled. The objects under a discretionary trust are not beneficially entitled.

Question 29

P Matthews, From Obligation to Property and back again? The future of the Non-Charitable :

Answer 29

Strong argument against Hayton’s argument.

• The enforcer must be beneficially entitled.
• The beneficiary’s right to enforce the trust is based upon the beneficiary’s proprietary entitlement to trust property. The right to sue for breach of trust and to trace proceeds of the breach all depend upon the beneficiary having a vested right in the property. NOTE: need to return to this after done breach. Matthews argues: remedies for a breach of trust are calculated by the beneficiary (enforcer) having a proprietary interest in the trust property. The law of trusts rests on assumption that the trustee suing for breach will be beneficially entitled.
• Removing the requirement of beneficiary and replacing that the enforcer be beneficially entitled risks collapsing trusts into contract. Law of contract performs a different function from trusts, why inject trust cases into contract. Two form different functions.
• English law does not recognise the enforcer principle at the moment - Objects of a discretionary trust can be considered beneficially entitled as, acting in concert, they can collapse the trust (Re Smith [1928] Ch 915 applying Saunders v Vautier to discretionary trusts). Discretionary trusts are not an exception to the beneficiary principle
• NCPTs allow easy avoidance of taxation. If you can create huge funds which are ownerless (Effectively), it becomes difficult to tax, many taxes are whether you take income or benefit of property. But with a NCPT there is no beneficiary with right to income or property so many permits easy avoidance tax.
• NCPTs raise the dangers of inalienable property and perpetual trusts. These dangers are only permitted with charitable purpose trusts because there is a strong pubic policy reason for upholding charitable purpose trusts. Perpetuities.
• Availability of alternatives to the NCPT: most convincing. Don’t need NCPT because those ends can be achieved by other means:

Question 30

What are the alternatives to NCPTs?

Answer 30

• Gift to an unincorporated association constituted to achieve the NCP
• Trust for human beneficiaries with a power to apply for a NCP. Have power to apply for abstract purpose, but X would still be beneficiary of trust. Can have a trust for a person but have a power to apply for an abstract purpose.
• Contract (Rights of Third Parties) Act 1999 to create promises enforceable by third parties. The promisor could promise to apply for certain moneys for a certain promise. Promisee might have right to sue under contract act if you fail to apply this money.

Existing law in England and wales can provide alternatives to NCPT so that NCPT may not be required.