CHAPTER 3

Non-Charitable
Purpose Trusts
Purpose Trusts

Questions of Construction

! Is it a valid purpose trust?

! Is it a trust for the benefit of specified persons (Re Denley)?

! Is it a mere gift with a motive?

! Is it a bare trust with a mere power?

Gifts with a motive

Where property is given to another individual and a special purpose is assigned for that gift, the court always
regards the gift as absolute, and the purpose merely as the motive for the gift (Re Sanderson). If it is a gift
with a motive, then the donee will be absolutely entitled to the property and he cannot be compelled to spend
on the motive specified (Re Bowes).

Non-Charitable Purpose Trusts

As a general rule, non-charitable purpose trusts are void; by their very nature their object is a purpose and
they therefore lack a necessary beneficiary to enforce the trust and fail the beneficiary principle (Re Enda-
cott - "some useful monument to myself").

However, they will not be void where:

1. they fall within one of the anomalous exceptions, or;

2. it is a purpose which directly or indirectly benefits a beneficiary (the rule in Re Denley);

3. property is held on trust for an unincorporated association, but it is possible to construe it as a gift to
the members of the association (i.e. contract holding theory is applicable)

Exceptions to the rule

Is the purpose one of the anomalous exceptions?

In some instances, a non-purpose trust will be upheld by the courts. These trusts are known as "trusts of im-
perfect obligation" and were set out in Re Endacott 1960:

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1. trusts for the erection and maintenance of monuments and graves

Where the trust is for the construction of a monument or grave (as opposed to upkeep which can gener-
ally last indefinitely and therefore fails for perpetuity), it has been accepted as a valid non-charitable pur-
pose trust (Mussett v Bingle - - 2 GIFTS: 300 TO ERECT A MONUMENT;200 TO MAINTAIN THE
MONUMENT VIA THE INTEREST GENERATED ON THE 200. THE SETTLOR MADE NO MENTION OF PER-
PETUITY, AND THE COURT DECIDED THAT THE 300 WAS VALID BECAUSE IT COULD BE COMPLETED
WITHIN 21 YEARS, BUT THE 200 WAS VOID BECAUSE IT COULD HAVE LASTED INDEFINITELY).

2. the saying of masses

Where masses are said in public it is likely to be a valid charitable trust. However, where the trust is for
the saying of private masses it will be upheld as a valid non-charitable purpose trust (Bourne v Keane
1919).

3. the care and maintenance of specific animals

This is typically where a settlor wishes that their own pets are looked after (Re Dean 1889 - upheld de-
spite the fact that there was no one who could enforce the trust and the period of 50 years listed did not
equate with the perpetuity period).

4. miscellaneous permissible purposes not within the above (Re Thompson 1934 - a trust for the promotion
on fox hunting. It was held that there is to be no expansion to this category).

Is the rule in Re Denley applicable?

Where a trust is for a purpose that does not fall within one the anomalous exceptions, it may still be valid
and enforceable where ascertainable individuals derive a direct or indirect benefit from that purpose (Re
Denley - land was held on trust for the purpose of recreational sports, but it was for the benefit of employees
of a particular company. The correct perpetuity period was stated, and the class of employees was readily as-
certainable).

However, there needs to be a strong and obvious link with an ascertainable class of people - most purpose
trusts indirectly benefit individuals, but are so indirect or intangible that they would not give the individual
any right to go to court to enforce the trust.

Where the rule in Re Denley is applicable, the property must be used for the purpose specified.

Gifts to (non-charitable) unincorporated associations

Making a gift to an incorporated body is not problematic, because an incorporated body (such as a company)
has legal personality and can therefore enforce the trust in the courts. A gift made to an incorporated associa-
tion will be legitimate so long as the incorporated body carries out the specified purpose and it is confined to
the perpetuity period (Re Chardon).

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However, many associations, such as sports are social clubs, are unincorporated (i.e. they are not incorpo-
rated as a company). This is problematic because unincorporated associations are not recognised as a legal
body and they do not satisfy therefore satisfy the beneficiary principle. In consequence, property cannot be
held on trust by unincorporated associations for their purposes, unless those purposes are charitable.

Has there been an absolute gift/gift of trust to an unincorporated association?

An unincorporated association has been described as "two or more persons bound together for one or more
common purposes... by mutual undertakings, each having mutual duties and obligations in an organisation
which has rules which identify in whom control of it and its funds rests and on what terms, and which may
be joined and left at will" (Conservative Central Office v Burrell 1982). In other words, unincorporated
bodies have a fair degree of formality and their rules or constitution constitute a contract between the mem-
bers of the association, giving rise to certain rights and obligations.

If yes, is there a way to prevent this from failing?

Where there is an absolute gift of property to the unincorporated association, or property is held on trust for
the unincorporated association, this is a non-charitable purpose trust that does not satisfy the beneficiary prin-
ciple and is invalid.

The way to get around this problem is to construe the trust as a gift to the members of the association (rather
than as a gift to the association for the purposes of the association) which will satisfy the beneficiary princi-
ple and will be valid.

In Neville Estates v Madden 1961 it was held that there are 3 ways to do so:

1. gift to members of association as joint tenants

It may be possible to construe the gift to specified members of the association as joint tenants, whereby
each party owns an undivided share in the gift which, under the right of survivorship, will accrue to the
remaining members on the joint tenants death. However, any of the joint tenants can sever their share
and claim it whether or not they continue to a member, and so it would be unlikely that the constitution of
an association would allow for this.

Where a gift is expressed as solely for a particular purpose, it cannot be construed as a gift to members as
joint tenants (Re Lipinski 1976 - e.g. 10,000 to the cricket club to refurbish the club house, rather than
to specified members).

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2. Gift to existing members subject to contractual rights and liabilities towards each other as members of the
association (preferred method)

It may be possible to construe the gift to the members of the association, whereby the property belongs to
the members subject to their contractual rights and liabilities towards one another. This is the most flexi-
ble and convenient approach. The property is held at all times by the existing members in accordance
with the rules of the association, and so no individual is able to sever and claim their individual share and
which will accordingly accrue to the remaining members on death or leaving the association (Hanchett-
Stamford v AG).

Where a sole purpose is specified, there is no obligation on the association to use the property in the pre-
scribed way (e.g. if the purpose is to fix building X, but building X is itself owned by and for the benefit
of the association's members) the gift may be construed as an absolute one without any conditions (Re
Lipinski).

In order to make it a trust for human beneficiaries, it must be possible for the members to ultimately
make the assets their own. It must therefore be possible in the rules or constitution of the association for
the members to wind up the association by agreement and to vest the remaining property in the current
members (Re Grant - gift failed because there was no way to wind up the association or to alter the rules
to allow this to happen. This also prevents the problem of perpetuity, as a society that could not be wound
up would be perpetual and therefore void).

3. property to be held on trust by the members so that it or its income may be enjoyed by the association or
its members from time to time

This option is rarely appropriate, but would apply if the donor expressly stated that the gift was to be held
for present and future members.

In such circumstances, the property would be held on trust with any accrued interest being used for exist-
ing and future members. However, this option suffers from the danger of perpetuity and could therefore
be rendered void, and so would need to be expressly limited.

! Whether or not these construction points are appropriate will depend on the rules and constitution of the
particular society in question (e.g. can the society be dissolved will be important in relation to (2)).

! In relation to unincorporated associations, if the trust is not a gift to the members then it must be for a pur-
pose - could it be for charitable purposes? If not, then it will be void due to the beneficiary principle, un-
less anomalous/Denley is applicable (taking into consideration certainty/perpetuity/capriciousness) e.g.
(Re Grant).

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Requirements

Several additional problems which relate to purpose trusts which may affect their validity

1. Perpetuity

A non-charitable purpose trust cannot last indefinitely and it will be void unless it is brought to an end within
the perpetuity period of a "human life in being" plus 21 years. The relevant person should be specified in the
trust deed and the settlor should also provide that it is to come to an end within 21 years of their death (s18
Perpetuities and Accumulations Act 2009).

Where the settlor does not set out the perpetuity period and gives only a vague indication of how long it will
last, it will be valid if the wording is sufficient to limit the duration to 21 years (Pirbright v Sawley 1896 -
money bequeathed to maintain a grave, "so long as the law at the time being permitted" was sufficient to
limit the duration to 21 years.).

Where the settlor does not mention the perpetuity period at all, the trust will only be upheld if something in
its circumstances indicate that it will be completed with 21 years (Mussett v Bingle 1876 - 2 gifts: 300 to
erect a monument;200 to maintain the monument via the interest generated on the 200. The settlor made
no mention of perpetuity, and the court decided that the 300 was valid because it could be completed within
21 years, but the 200 was void because it could have lasted indefinitely).

2. Certainty

In order for a non-charitable trust to have any prospect of being upheld, its purpose must be specified with
sufficient detail and precision in order that the court may control, and the trustees may administer, the trust -
if it is too vague, it will fail.

The purposes must be stated in phrases which embody definite concepts, and the means by which the trus-
tees are to try and obtain them must be prescribed with a sufficient degree of certainty. The class of benefici-
aries, or those people intended to benefit, must also be sufficiently certain. (Re Astor 1952 - it was held that
the purpose of "cooperation between nations" and "the preservation and integrity and independence of news-
papers" was too uncertain and there were no instructions, so the trust failed).

3. Public Policy

Purpose trusts will not be valid where the purpose is useless or capricious, particularly if the sum is rele-
vantly large and the period relatively long (M'Caig's Trustees 1915 - settlor, 11 brown statutes costing not
less than 1000 each should be erected to the memory of various relatives. Excessive and of benefit to no-
body. Trust failed).

Dissolution and Surplus Assets

Where an unincorporated association is dissolved and two or more members exist at the date of dissolution,
the ultimate destination of any surplus property held by the association is governed exclusively by the rules
of their constitution as to rights to any surplus assets (Re Bucks).

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Where an unincorporated association is reduced to a single member, the last remaining member becomes
solely entitled to any surplus assets (Hanchett-Stamford v AG)

Alternative methods of pursuing non-charitable purposes

! Corporations

It is possible to make a gift to a corporate body to advance non-charitable ends provided the company
carries out the specified purpose and is confined to the perpetuity period (Re Chardon). Alternatively,
incorporation of the society itself will effect a practical solution to the problem of trusts for purposes
as the society will become a legal entity.

! Bare trust with use of power

The beneficiary principle only applies to trusts, and so it is possible to avoid the problem of trusts for
purposes by drafting a power, e.g. a bare trust where the beneficiary is under no obligations to use the
property in a particular way and the trustee has the power of capital appointment for the specific pur-
pose (i.e. the trustee can disperse money for that specified purpose). However, where a power is em-
ployed there is no obligation on the donee to pursue the purpose.

Once there is a manifest intention to create a trust the court cannot conclude that there was a power
(Re Shaw).

! Off-shore trusts

The use of off-shore trusts has become an increasingly evident means of creating trusts for non-
charitable purposes. In Cyprus, for example, there is no perpetuity period.

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