#2535 - The Beneficiary Principle And Non Charitable Purpose Trusts - Trusts and Equity

The Beneficiary Principle and Non-Charitable Purpose Trusts

Rule against private purpose trusts: Every English trust must have a beneficiary to enforce the trustee’s obligations. A trust for an abstract purpose, with no beneficiaries, is void.

• Morice (1804);

Facts: Trust fund applied for ‘liberal or benevolent purposes’.

Decision: Held the testatrix did not mean charity. Held trust failed because:

(1) There were no human beneficiaries, so no-one had standing to enforce the T’s duties, so the Ts are unaccountable in the administration of the trust fund.

(2) Uncertain – testatrix did not say how the fund should be applied. In charitable cases the trust can be as vague as you like, and the court will implement a scheme of distribution. With a private purpose trust there is no ability to render precise vague terms by means of a scheme. Principle: Beneficiary principle requires a valid trust to have human beneficiaries. Trust inoperable here as Ts do not know what to do with money.

• Re Astor’s Settlement Trusts [1952];

Facts: Involved the entire share holding of the Observer Newspaper. All shares given to trustees – trustees required to apply the shares for: 1. maintenance and improvement of good understanding sympathy and co-operation between nations; 2. The preservation of the independence and integrity of newspapers …5. The protection of newspapers from being absorbed or controlled by combines”.

Decision: Void because there were no private beneficiaries; just vague purposes.

• Leahy v. Attorney-General for New South Wales [1959];

Facts: A testamentary gift made by the widow of a wealthy man. Left residuary estate: “[My homestead and furniture] upon trust for such orders of nuns of the Catholic Church or the Christian Brothers as my executors and trustees shall select”.

Decision: This was a purpose trust in disguise. This was not a charity because not all religious orders are charitable. It was so wide that some orders may be contemplative orders, rather than pursuing extraneous good works. So taking a broad view of construction it was void – could further non-charitable purposes.

Cf. now the “contract-holding theory” of gifts to unincorporated associations (see notes on property holding by unincorporated associations).

NB. Powers - Powers do not require beneficiaries (Douglas). Should not allow a valid power to be born just because a trust is invalid (IRC v. Broadway).

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Objections to private purpose trusts:

(i) Enforcement of the T’s duty to account - A trustee who is subject to no enforceable duty to account for his or her management of the trust fund is in effect a beneficial owner of it. The duty to account implies a correlative right in a beneficiary to enforce it.

• Morice (1804); Need to maintain the distinguishing features of a trust. If there is no beneficiary there could be outright transference of ownership.

• Armitage v. Nurse [1998]; Accountability is part of the ‘irreducible core’ of being a T. If a T is to be accountable there must be a B with standing to enforce that duty.

• Re Astor’s Settlement Trusts [1952]; If you must have accountability then you must have a B on the other end to make the duty real.

(ii) Beneficial ownership cannot be kept in suspense - The rights of enforcement of a B against his or her T are treated as beneficial property rights enforceable against the trust fund. A purpose trust would involve a fund of which no person was the beneficial owner. This is a problem because there is a policy against ownerless property – allowing people to put property into a black hole. A purpose trust is an extreme ring-fencing of property; ring fenced from settlor’s claims, there are no Bs so no one can claim it.

Compare the collective beneficial ownership of objects under a discretionary trust and their powers under Saunders v. Vautier (1841). If you are the object of a discretionary trust no one object, has an absolute interest in the trust fund – but collectively all Bs do own the property. That’s why they can exercise Saunders rights and take it outside the control of the trustee.

+ McBride: Economic arguments – they have a socially useful function in not being capricious. It is presumed bad to tie up property in this way.

(iii) Uncertainty and unworkability - The purposes for which the Ts are required to apply the property may be too uncertain in their definition. The Ts may not be able to execute them in a workable way.

• Re Astor’s Settlement Trusts [1952];

Facts: Ts held capital fund for purpose of ‘promoting good will between nations’.

Issue: How do you know when the Ts have not done their duty? The settlor does not define discreetly, precisely what the duties of the Ts are. The trust is too uncertain to be workable. Trustees must be able to know in advance whether what they are doing will be ultra vires or intra vires to their powers = Objection goes to the very workability of the trust.

• R v. District Auditor, ex p. West Yorkshire District County Council (1985); Said to involve a non-charitable purpose trust. How were the Ts meant to apply the property for the 400,000 residents? Same workability issues applied to the treatment of it as a non-charitable purpose trust.

(iv) Public policy - The purpose may be contrary to public policy, in particular by infringing the rule against inalienability of property. A trust which is contrary to public policy will not be enforced. This limitation applies to all kinds of trust but it becomes especially relevant for non-charitable purpose trusts.

• Brown v. Burdett (1882); Testatrix’s testamentary trust provided that her house would be sealed up for 20 years. Concern is that people for no good reason will use purpose trust to put property out of circulation.

Purpose trusts take a long time to fulfil – no time limit! Leads to ‘dead hand control’ over property. A perpetuity clause may be needed to limit the trust’s duration (see perpetuities). Can nullify property and take it out of circulation.

+ Nolan: allowing more of these would encourage more sham trusts.

Arguments in favour of private purpose trusts

+ Gray: There are a lot of things in the world which are owned by nobody.

+ Other jurisdictions:

Offshore jurisdictions only require that someone has a self interest – there is no requirement that someone is able to enforce it. The trust can allow third parties to enforce it as long as they have some form of factual interest.

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Anomalous exceptions to the rule requiring beneficiaries

Unlike charitable purpose trusts, these categories cannot be extended by analogy:

1. Monuments and graves – erection and upkeep (Musset v. Bingle)

A trust for the upkeep of a church will be charitable but a trust for the upkeep of an individual monument or grave, which is not part of the fabric of a church, is not charitable because it has no public benefit.

• Vaughan; Because they are part of the churchyard in general.

• Re Endacott [1960]; The bequest itself must also be sufficiently certain in its purpose: A residual gift to North Tawnton Parish Council to provide ‘a useful memorial to myself’ was invalid as was too broad. ‘Useful memorial’ unclear.

• Musset v. Bingle [1876]; Perpetuity period applies: A bequest for the erection of a monument to the testator’s first husband was a valid purpose trust. But there was also a bequest for the upkeep of the monument. This was void as it was contrary to the rule against inalienability as it was not limited to a perpetuity period.

2. Saying of masses (Gilmour v. Coates)

The saying of masses (church service) in public will be charitable, even if the object of the masses is dedicated to a private individual (Re Hetherington [1990]). The saying of masses in private or cloistered orders can be an anomalous exception (Gilmour v. Coates [1949]).

• Bourne; Perpetuity period applies.

3. Animals (Re Dean)

Trusts for support and welfare of animals in general may be charitable/enforceable, i.e. a trust to benefit the RSPCA. However, trusts for the upkeep of particular animals can only be enforceable as a non-charitable purpose trust.

• Re Dean (1899); A trust for the upkeep of horses and hounds held to be valid.

Perpetuity: Anomaly between these decisions…

• Re Dean (1899); The period was for 50 years ‘if they live that long’ and was held to be valid. Presumably because animals unlikely to live that long. Not sp. addressed.

• Re Kelly [1932]; Made clear that the ‘life in being’ required by the perpetuity period must be a human life.

4. Miscellaneous

• Re Thompson [1934]; Trust for 1000 given for the promotion of fox hunting. Unlikely to be upheld today in light of the Hunting Act 2004 which banned hunting.

NB. Any purpose trust that is held to be valid gives Bs rights under Saunders v. Vautier.

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Valid Private Purpose Trusts

(i) Avoidance method 1: Construe the purpose trust as being for ‘persons’ and conferring rights on the beneficiaries

Rule of construction in Re Sanderson Trust: An apparent trust for a purpose may be construed as a trust conferring vested proprietary rights in the beneficiaries.

Facts: The fund was to be applied in whole or in part to the maintenance, attendance and comfort of the settlor’s brother. When...