Purpose Trust
Encyclopedia
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 are usually referred to simply as charitable trust
s. 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 will not 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 is not to be spelled out of an invalid trust."
. 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 trust
s on the basis that there would be difficulty ascertaining beneficiaries for the court to enforce the trust in favour of.
. Private trusts are not. Accordingly, all non-charitable purposes trusts, to be valid, need to comply with the perpetuity rules in the relevant jurisdiction.
s or monuments have been upheld as a matter of grave concern in 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 would not have done so had it not been bound by Pirbright 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.
have sometimes been considered to be purpose trusts, but the modern view is that they are resulting trusts to the settlor subject to a power to dispose of the assets in a predetermined fashion.
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 does not merit".
In Re Endacott [1960] Ch 232 it was made clear that the existing exceptions at common law would not be extended; they were described as "troublesome, anomalous and aberrant".
have enacted statute
s 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 trustee
s. 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 would be regarded as being owned solely by the trustees, which could have disastrous tax implications for the trustees.
Trust law
In common law legal systems, a trust is a relationship whereby property is held by one party for the benefit of another...
which has no beneficiaries
Beneficiary (trust)
In trust law, a beneficiary or cestui que use, a.k.a. cestui que trust, is the person or persons who are entitled to the benefit of any trust arrangement. A beneficiary will normally be a natural person, but it is perfectly possible to have a company as the beneficiary of a trust, and this often...
, but instead exists for advancing some non-charitable
Charitable trust
A charitable trust is an irrevocable trust established for charitable purposes, and is a more specific term than "charitable organization".-United States:...
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 are usually referred to simply as charitable trust
Charitable trust
A charitable trust is an irrevocable trust established for charitable purposes, and is a more specific term than "charitable organization".-United States:...
s. 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
Statute
A statute is a formal written enactment of a legislative authority that governs a state, city, or county. Typically, statutes command or prohibit something, or declare policy. The word is often used to distinguish law made by legislative bodies from case law, decided by courts, and regulations...
. The court will not usually validate non-charitable purpose trusts which fail by treating them as a power
Power of appointment
A power of appointment is a term most frequently used in the law of wills to describe the ability of the testator to select a person who will be given the authority to dispose of certain property under the will. Although any person can exercise this power at any time during their life, its use is...
. In IRC v Broadway Cottages Trust [1955] Ch 20 the English Court of Appeal
Court of Appeal of England and Wales
The Court of Appeal of England and Wales is the second most senior court in the English legal system, with only the Supreme Court of the United Kingdom above it...
held: "I am not at liberty to validate this trust by treating it as a power. A valid power is not 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 GeneralAttorney General
In most common law jurisdictions, the attorney general, or attorney-general, is the main legal advisor to the government, and in some jurisdictions he or she may also have executive responsibility for law enforcement or responsibility for public prosecutions.The term is used to refer to any person...
. However, such conceptual objections seem less strong since the decision of the House of Lords
Judicial functions of the House of Lords
The House of Lords, in addition to having a legislative function, historically also had a judicial function. It functioned as a court of first instance for the trials of peers, for impeachment cases, and as a court of last resort within the United Kingdom. In the latter case the House's...
in McPhail v Doulton
McPhail v Doulton
Re Baden's Deed Trusts or McPhail v Doulton [1971] AC 424 was a landmark decision of the House of Lords in English trusts law.-Facts:...
[1971] AC 424 where Lord Wilberforce
Richard Wilberforce, Baron Wilberforce
Richard Orme Wilberforce, Baron Wilberforce, PC was a Lord of Appeal in Ordinary in the House of Lords from 1964 to 1982....
rode roughshod over objections to widening the class of valid discretionary trust
Discretionary trust
In British and Canadian law, a discretionary trust is a trust where the beneficiaries and/or their entitlements to the trust fund are not fixed, but are determined by the criteria set out in the trust instrument by the settlor. It is sometimes referred to as a family trust in Australia...
s on the basis that there would be difficulty 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 is much greater risk that a trust would not 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 perpetuitiesRule against perpetuities
The common law rule against perpetuities forbids some future interests that may not vest within the time permitted; the rule "limit[s] the testator's power to earmark gifts for remote descendants"...
. 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 tombTomb
A tomb is a repository for the remains of the dead. It is generally any structurally enclosed interment space or burial chamber, of varying sizes...
s or monuments have been upheld as a matter of grave concern in 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 would not have done so had it not been bound by Pirbright 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 trustsQuistclose trust
Barclays Bank Ltd v Quistclose Investments Ltd [1970] AC 567 is a leading property, unjust enrichment and trusts case, which invented a new species of proprietary interest...
have sometimes been considered to be purpose trusts, but the modern view is that they are resulting trusts to the settlor subject to a power to dispose of the assets in a predetermined fashion.
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, CambridgeTrinity Hall, Cambridge
Trinity Hall is a constituent college of the University of Cambridge, England. It is the fifth-oldest college of the university, having been founded in 1350 by William Bateman, Bishop of Norwich.- Foundation :...
for the promotion and furtherance of fox hunting
Fox hunting
Fox hunting is an activity involving the tracking, chase, and sometimes killing of a fox, traditionally a red fox, by trained foxhounds or other scent hounds, and a group of followers led by a master of foxhounds, who follow the hounds on foot or on horseback.Fox hunting originated in its current...
was upheld. It has been suggested academically that the case has "been elevated to a position of importance which it does not merit".
In Re Endacott [1960] Ch 232 it was made clear that the existing exceptions at common law would not be extended; they were described as "troublesome, anomalous and aberrant".
Mistakes about the Common Law
Paul Baxendale-Walker has argued in the book "Purpose Trusts" (Butterworths 1999)Paul BW Chaplin#Biography that the courts took a wrong turn in the mid 20th century and ignored hundreds of previous years of judicial precedents in which purpose trusts of all kinds had been upheld as valid. He contends that the "beneficiary principle" has been misunderstood. His view have received support from Professor Jill Martin and others.Statutory exceptions
A number of offshore jurisdictionsOffshore financial centre
An offshore financial centre , though not precisely defined, is usually a small, low-tax jurisdiction specializing in providing corporate and commercial services to non-resident offshore companies, and for the investment of offshore funds....
have enacted statute
Statute
A statute is a formal written enactment of a legislative authority that governs a state, city, or county. Typically, statutes command or prohibit something, or declare policy. The word is often used to distinguish law made by legislative bodies from case law, decided by courts, and regulations...
s which expressly validate non-charitable purpose trusts outside of the small group of specific exceptions recognised at common law
Common law
Common law is law developed by judges through decisions of courts and similar tribunals rather than through legislative statutes or executive branch action...
. Some of the jurisdictions which have done so include the Bahamas, Bermuda
Bermuda
Bermuda is a British overseas territory in the North Atlantic Ocean. Located off the east coast of the United States, its nearest landmass is Cape Hatteras, North Carolina, about to the west-northwest. It is about south of Halifax, Nova Scotia, Canada, and northeast of Miami, Florida...
, the British Virgin Islands
British Virgin Islands
The Virgin Islands, often called the British Virgin Islands , is a British overseas territory and overseas territory of the European Union, located in the Caribbean to the east of Puerto Rico. The islands make up part of the Virgin Islands archipelago, the remaining islands constituting the U.S...
and the Cayman Islands
Cayman Islands
The Cayman Islands is a British Overseas Territory and overseas territory of the European Union located in the western Caribbean Sea. The territory comprises the three islands of Grand Cayman, Cayman Brac, and Little Cayman, located south of Cuba and northwest of Jamaica...
.
Characteristically, in those jurisdictions a non-charitable purpose trust requires a written trust instrument
Trust instrument
A trust instrument is an instrument in writing executed by a settlor used to constitute a trust...
and the trust instrument must specify a protector
Protector (trust)
In trust law, a protector is a person appointed under the trust instrument to direct or restrain the trustees in relation to their administration of the trust....
or enforcer who will have locus standi to enforce the terms of the trust against the trustee
Trustee
Trustee is a legal term which, in its broadest sense, can refer to any person who holds property, authority, or a position of trust or responsibility for the benefit of another...
s. 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 would be regarded as being owned solely by the trustees, which could have disastrous tax implications for the trustees.