#2529 - Charitable Trusts - Trusts and Equity

Charitable Trusts

The charitable trust exception: Charitable trusts are an exception to the rule that purpose trusts are not permitted due to the absence of any Bs to enforce the duties of the trustees.

• Benefits the public and so charitable trusts can be enforced by the Attorney-General.

• Charitable trusts are exempt from the certainty of objects requirement (Morice v. Bishop of Durham (1805)).

Test: A valid charitable trust must:

1. Have a recognised charitable purpose;

2. Be for the ‘public benefit’; and

3. Have exclusively charitable purposes.

The significance of being a charitable purpose trust:

1. Numerous tax advantages - E.g. charitable trusts exempt from income tax, capital gains tax and stamp duty. Entitled to 80% relief on non-domestic rates. Charities are able to claim additional gift aid on donations made by taxpayers, and gifts made and exempt from inheritance and capital gains tax.

2. Rule against perpetuities – In contrast to other trusts, property can be dedicated indefinitely to a charitable purpose trust. By allowing charitable trusts to exist indefinitely, they can become better at what they do through the development of greater expertise and resources.

3. Recognition that a purpose or body is charitable is viewed by many as a state-sanctioned stamp of legitimacy or approval, and may affect the way in which the body or purpose is viewed by the public.

4. Charities must register their existence with the Charity Commission and provide info on a periodic basis. Registration imposes obligations on those who operate the charity, and on the Commission to oversee that charity.

Occasionally courts consider the consequences of finding that a purpose or body is charitable when deciding whether to grant charitable status in the first place:

• Dingle v Turner [1972] AC 601;

Facts: Concerned whether a trust for poor employees of a company who were aged or incapacitated was a charity.

Decision: Lord Cross stated, ‘the courts cannot avoid having regard to the fiscal privileges accorded to charities’. ‘In deciding that such and such a trust is a charitable trust the court is endowing it with a substantial annual subsidy at the expense of the tax payer’. ‘As things are validity and fiscal immunity march hand in hand’ – although Cross thinks they should be regarded as two different questions and not automatically attract fiscal immunities.

These factors were also viewed as important in Oppenheim v Tobacco Securities Trust Co Ltd and Re Compton.

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The Charities Act 2006

Charitable purposes were first defined in the Preamble of the Statute of Charitable Uses 1601.

Old test: The Pemsel heads of charity

• Commissioners for Special Purposes of Income Tax v. Pemsel [1891]; Lord McNaghten identified four heads of charity:

  1. The relief of poverty;

  2. The advancement of education;

  3. The advancement of religion;

  4. Other purposes beneficial to the community – includes analogous purposes.

The Charities Act - Two-stage test:

Thirteen purposes set out in s.2(2) are as follows:

S.3 guidance – it confirms that a purpose must be for the public benefit, but provides that ‘it is not to be presumed that a purpose of a particular trust is for the public benefit’ (s.3(2)).

1. The Thirteen Purposes

1. S.2(2)(a): The prevention or relief of poverty

• Joseph Rowntree Memorial Trust Housing Association v AG [1983] Ch 159;

Facts: Housing association sought charitable status for a housing scheme for those above pensionable age. The association intended to grant long leases of small, self-contained flats (specially adapted for the needs of the elderly) in return for payment of a capital premium, which was below market-value for such leases.

Decision: Gibson J found in favour of the housing association and granted it charitable status.

Principle: ‘Relief’ implies that the beneficiaries ‘have a need attributable to their condition as aged, impotent or poor persons which requires alleviating, and which those persons could not alleviate, or would find difficulty in alleviating, themselves from their own resources’.

‘Impotent’: ‘Physically weak’.

‘Poor’: In Re Coulthurst [1951] Sir Evershed held this covers those who would otherwise have to ‘“go short” in the ordinary acceptation of that term’. Less than destitution.

• Re Sanders’ Will Trusts [1954];

Harman J said that a trust to provide funds for ‘the working classes’ was not a charitable trust; as not all of those who were working class were necessarily poor. Some can afford housing.

• Re Niyazi’s Will Trusts [1978];

Facts: Funds held on trust to contribute towards the cost of a ‘working men’s hostel’.

Decision: Megarry VC distinguished Re Sanders on the basis that the word ‘hostel’ had ‘a strong flavour of a building which provides accommodation for those who have some temporary need for it and are willing to accept accommodation of that standard in order to meet the need’. When properly construed the trust was aimed at relief and so was charitable.

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1. S.2(2)(b): The advancement of education

General test for the assessment of whether a purpose falls within the education head:

• Incorporated Council of Law Reporting for England and Wales v AG [1972];

Decision: CA held that the purpose of providing accurate law reports was charitable, as it facilitated the study and ascertainment of the law.

Test: Buckley J stated: ‘the second head [i.e. education] should be regarded as extending to the improvement of a useful branch of human knowledge and its public dissemination’.

• Inland Revenue Commissioners v McMullen [1981] AC 1;

Facts: Trust established by Football Association with objects of aiding the provision of facilities at educational establishments to play association football or other games or sports.

Decision: H of L held such purposes were charitable. Lord Hailsham stated, ‘I reject any idea which would cramp the education of the young within the school or university syllabus, confine it within the campus, limit it to formal instruction, or render it devoid of pleasure in the exercise of skill’.

Principle: Such trusts need not be targeted directly at academic activities. The advancement of education has been widely construed in relation to schools and universities.

• Re Hopkins’ Will Trusts [1965] Ch 669;

Decision: Wilberforce J held that a trust established for the purpose of providing funds to find the Bacon-Shakespeare manuscripts was charitable. The search was not ‘manifestly futile’ and, if discovered, the manuscripts would be ‘of the highest value to history and to literature’.

Generally trusts aimed at enabling research to be carried out will be held to be valid if:

1. The subject matter of the proposed research is a useful subject of study;

2. It is contemplated that knowledge acquired will be disseminated to others; and

3. The trust is for the benefit of at least a ‘sufficiently important’ section of the public (Slade J, in Re Besterman’s Will Trusts (1980).

Several other purposes have been held to be educational:

• Royal Choral Society v Inland Revenue Commissioners [1943]; a trust to ‘form and maintain a choir in order to promote the practice and performance of choral works’ was upheld because it would educate artistic tastes.

• Commissioners of the Inland Revenue v White [1980]; a trust to ‘encourage the exercise and maintain the standards of crafts and craftsmanship’ was upheld.

• Re Dupree’s Deed Trusts [1945]; a trust for the purpose of providing an annual chess tournament was upheld.

• Re South Place Ethical Society [1980] and Re Koeppler’s Will Trusts [1986]; trusts for the ‘study and dissemination of ethical principles’ and for the ‘formation of an informed international public opinion’ were upheld.

The question of whether a purpose is ‘useful’ (Incorporated Council of Law Reporting for England and Wales v AG) has been considered:

• Re Delius [1957]; examined a trust for the advancement of musical works of the testatrix’s late husband. Held to be valid, in part because of the high standard of Delius’ work.

• Re Pinion [1965];

Facts: Concerned the validity of a trust established by a testator for the purpose of keeping his studio and its contents intact and displayed to the public.

Decision: Held that the exhibits were of too low a quality to justify charitable status. Harman LJ held that it was ‘essential to know at least something of the quality of the proposed exhibits in order to judge whether they will be conclusive to the education of the public’. ‘I can conceive of no useful object to be served in foisting upon the public this mass of junk’.

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1. S.2(2)(c): The advancement of religion

It states that religion includes:

1. ‘a religion which involves belief in more than one god; and

2. a religion which does not involve belief in a god’.

A trust must be not just religious, but also for the advancement of religion:

• United Grand Lodge of Ancient Free and Accepted Masons v Holborn BC [1957];

Donovan J stated the purpose must be to, ‘promote the religion, to spread its message ever wider among mankind; to take some positive steps to sustain and increase religious belief’.

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