Charitable trusts and non-charitable purpose trusts - Non-charitable purpose trusts and their limitations

Learning Outcomes

This article outlines the general principles governing non-charitable purpose trusts, focusing on the reasons why they are often invalid. It explores the beneficiary principle and the rule against perpetuities as key limitations. For the SQE1 assessments, you will need to understand why most non-charitable purpose trusts fail and identify the limited exceptions where such trusts may be considered valid. Your understanding will enable you to apply these legal principles to SQE1-style single best answer MCQs concerning the validity of trusts created for purposes rather than specific individuals.

SQE1 Syllabus

For SQE1, you are required to understand the distinction between trusts for individuals and trusts for purposes. This article focuses specifically on non-charitable purpose trusts and their limitations. Your revision should pay particular attention to:

• The beneficiary principle and its role in trust validity.
• The reasons why non-charitable purpose trusts generally fail.
• The limited exceptions to the rule against non-charitable purpose trusts, including trusts for the maintenance of specific animals or graves, and the principle derived from Re Denley.
• The application of the rule against perpetuities (specifically the rule against inalienability) to non-charitable purpose trusts.
• Distinguishing valid non-charitable purpose trusts from invalid ones and from charitable trusts.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. What is the core reason, established in Morice v Bishop of Durham, why most non-charitable purpose trusts are void?
   1. Lack of certainty of intention
   2. Lack of certainty of subject matter
   3. Lack of ascertainable beneficiaries to enforce the trust
   4. Violation of the rule against perpetuities
2. Which of the following is NOT generally considered a valid anomalous exception to the rule against non-charitable purpose trusts?
   1. A trust for the maintenance of the testator's favourite cat for 21 years.
   2. A trust for the erection of a monument to the testator.
   3. A trust for the promotion of a specific political party's ideology.
   4. A trust for the upkeep of the testator's grave for the perpetuity period.
3. A trust is established to maintain a sports ground for the benefit of the employees of X Ltd and their families. Which principle might potentially validate this trust?
   1. The cy-près doctrine
   2. The rule in Saunders v Vautier
   3. The principle in Re Denley's Trust Deed
   4. The presumption of advancement

Introduction

While most trusts are established for the benefit of specific individuals (beneficiaries), some trusts are created to achieve a particular purpose. These are known as purpose trusts. Purpose trusts can be broadly divided into charitable trusts (which benefit the public and satisfy specific legal criteria) and non-charitable purpose trusts. This article focuses on the latter category.

Non-charitable purpose trusts face significant hurdles to validity under English law primarily because they often conflict with two fundamental trust principles: the beneficiary principle and the rule against perpetuities. Understanding these limitations and the narrow exceptions is essential for advising clients and for success in the SQE1 assessment.

The Beneficiary Principle

The fundamental principle dictating the validity of private trusts is the beneficiary principle.

Key Term: Beneficiary Principle
The rule stating that, for a private trust to be valid, there must be ascertainable beneficiaries who can enforce the trust against the trustees.

This principle was clearly articulated in Morice v Bishop of Durham (1804) 9 Ves Jr 399, where Sir William Grant MR stated, 'There must be somebody, in whose favour the court can decree performance'. Without beneficiaries, there is no one to hold the trustees accountable for fulfilling the trust's terms. This lack of enforceability means the court cannot supervise the trust's administration.

Why Non-Charitable Purpose Trusts Usually Fail

Non-charitable purpose trusts, by their nature, are established for a purpose (e.g., maintaining a specific building, promoting a hobby) rather than for specific people. Consequently, they typically lack the ascertainable human beneficiaries required by the beneficiary principle. If there is no one who can legally compel the trustees to carry out the stated purpose, the trust arrangement is generally considered void.

Worked Example 1.1

A testator leaves £50,000 in his will to trustees "for the purpose of promoting better understanding between nations". Is this likely to be a valid trust?

Answer: This trust is likely void. It is for a purpose, but the purpose is unlikely to be considered charitable (it's likely too political or vague). As a non-charitable purpose trust, it fails the beneficiary principle because there are no ascertainable human beneficiaries who can enforce it (Re Astor's Settlement Trusts [1952] Ch 534).

Distinction from Charitable Trusts

It is important to distinguish non-charitable purpose trusts from charitable trusts. Charitable trusts are purpose trusts, but they represent a major exception to the beneficiary principle. This is because:

1. They fulfil purposes legally recognised as charitable (e.g., relief of poverty, advancement of education).
2. They benefit the public or a sufficient section of it.
3. Enforcement is ensured by the Attorney General and the Charity Commission, acting on behalf of the public.

These factors justify their exemption from the beneficiary principle. Non-charitable purpose trusts lack this public benefit and enforcement mechanism.

Exceptions to the Beneficiary Principle

Despite the general rule, courts have recognised some limited exceptions where non-charitable purpose trusts can be valid, largely as historical anomalies or concessions to human sentiment.

Key Term: Purpose Trust
A trust established not for the benefit of ascertainable individuals, but to achieve a specific aim or purpose.

Anomalous Exceptions (Trusts of Imperfect Obligation)

These are specific, narrowly defined categories upheld in older case law. They are often called trusts of 'imperfect obligation' because, while valid, there is no beneficiary who can compel the trustee to carry out the purpose; the trustee is effectively on their honour. These exceptions include trusts for:

• The maintenance of specific animals: Trusts for the care of particular pets (Re Dean (1889) 41 Ch D 552). The duration must be limited to the perpetuity period (see below).
• The erection and maintenance of graves and monuments: Trusts for building or maintaining specific tombs or monuments, provided they are not charitable (e.g., inside a church) and are limited in duration (Re Hooper [1932] 1 Ch 38).

Exam Warning

These exceptions are narrowly construed and unlikely to be extended. A trust for a purpose falling outside these specific categories (and not being charitable or falling under Re Denley) will likely be void. For example, a trust for "providing some useful memorial to myself" was held void (Re Endacott [1960] Ch 232).

The Re Denley Principle

A more modern and conceptually distinct exception arises from Re Denley's Trust Deed [1969] 1 Ch 373.

Key Term: Re Denley Trust
A trust expressed as being for a purpose, but which directly or indirectly benefits ascertainable individuals, who can therefore enforce the trust.

In Re Denley, land was held on trust to be maintained and used as a sports ground primarily for the benefit of employees of a specific company. Goff J held the trust valid because, although framed as a purpose, it provided a direct and tangible benefit to an ascertainable class of individuals (the employees), who could enforce the trust if the trustees failed to maintain the sports ground.

Worked Example 1.2

A trust fund is established "for the purpose of providing a leisure centre for the benefit of the residents of Smallville for the next 20 years". Is this likely to be a valid trust?

Answer: This trust might be valid under the Re Denley principle. Although stated as a purpose (providing a leisure centre), it confers a direct and tangible benefit on an ascertainable class of individuals (the residents of Smallville). These individuals would have standing to enforce the trust. The trust is also limited in duration (20 years), satisfying perpetuity requirements.

Revision Tip

For Re Denley to apply, the benefit to the individuals must not be too indirect or intangible, and the class of individuals must be ascertainable. If the benefit is too remote or the class too wide or uncertain, the trust may still fail.

The Rule Against Perpetuities

Even if a non-charitable purpose trust navigates the beneficiary principle (via an exception), it must also comply with the rule against perpetuities. For purpose trusts, the relevant rule is the rule against inalienability.

Key Term: Rule Against Inalienability
A common law rule stipulating that the capital of a non-charitable purpose trust cannot be tied up indefinitely; the trust must be limited in duration to the perpetuity period.

This rule prevents property from being rendered inalienable (non-transferable) for too long. The common law perpetuity period is a life (or lives) in being plus 21 years. For purpose trusts with no relevant human lives to measure against, this period is effectively 21 years.

Application to Purpose Trusts

• Trusts requiring ongoing expenditure from income: If a trust requires income to be used for the purpose indefinitely (e.g., "to maintain my grave forever"), the capital producing that income is tied up forever. Such a trust is void unless expressly limited in duration to the perpetuity period (max 21 years).
• Trusts allowing expenditure of capital: If the trustees can spend the entire capital on the purpose at any time (e.g., "£10,000 to build a statue"), the trust does not necessarily offend the rule, as the capital is not perpetually inalienable. The court may assume the purpose will be completed within 21 years (Mussett v Bingle [1876] WN 170).

Worked Example 1.3

A testator leaves £5,000 in his will "to my trustees to provide an annual prize for the best vegetable grown in the village allotments". Is this trust valid?

Answer: This trust is likely void. It appears to be a non-charitable purpose trust (promoting vegetable growing). While potentially benefiting allotment holders (Re Denley arguably doesn't apply as the benefit is indirect), the primary issue is perpetuity. Providing an annual prize implies using the income indefinitely, thus tying up the capital beyond the 21-year perpetuity period allowed for non-charitable purpose trusts. It lacks the necessary time limitation.

Perpetuity Period for Anomalous Exceptions

Trusts falling under the anomalous exceptions (animals, graves) must also comply. A trust for an animal's life might be valid if the animal's lifespan is clearly less than 21 years (Re Haines [1952] The Times, 7 Nov). Trusts for maintaining monuments or graves must be expressly limited (e.g., "for 21 years" or "as long as the law allows").

Summary

Table: Validity of Non-Charitable Purpose Trusts

Key Point Checklist

This article has covered the following key knowledge points:

• Non-charitable purpose trusts are generally void because they offend the beneficiary principle.
• The beneficiary principle requires ascertainable beneficiaries who can enforce the trust.
• Charitable trusts are an exception because they have public benefit and are enforced by the Attorney General/Charity Commission.
• Limited anomalous exceptions exist for trusts for specific animals or the maintenance of graves/monuments, but these are narrowly construed.
• The Re Denley principle allows trusts for purposes that directly benefit ascertainable individuals to be valid.
• Non-charitable purpose trusts must also comply with the rule against perpetuities (rule against inalienability), typically meaning they cannot last longer than 21 years unless the capital can be spent at any time.

Key Terms and Concepts

• Beneficiary Principle
• Purpose Trust
• Re Denley Trust
• Rule Against Inalienability