Equity: Charitable Purpose Trusts

Charitable Purpose Trusts

What is a Charitable Trust?

Charitable trusts are special kinds of trusts. They serve a particular ‘charitable purpose’ rather than benefiting a specific person or persons.

The Special Status of Charitable Trusts

Charitable trusts are exempt from several limitations and disadvantages of private trusts. For example, they are immune from the rule against inalienability of capital and the need for a certain beneficiary. They are also advantageous from a tax perspective. Since they lack a beneficiary, charitable trusts are enforced by the Charity Commissioners.

What Makes a Trust Charitable?

A trust is charitable if its purposes are exclusively charitable. There are three requirements for a trust to have a charitable purpose.

  1. The trust’s purpose(s) must fall within the list of 12 purposes provided by the Charities Act 2011.
  2. The trust must be exclusively for charitable purposes.
  3. Its purpose(s) must be for the public benefit (except where the purpose is the relief or prevention of poverty): s.2(1).

A trust which is partially for charitable purposes and partially for other purposes does not count as a charitable trust. The trust’s sole purposes must be charitable (Charities Act 2011, s.1). There is an exception to this where any non-charitable activities are ancillary or de minimis: Re Coxen [1948] Ch 747.

If the trust is ambiguous the courts should give it a benevolent construction: IRC v Mullen [1981] AC 1. If it is possible to save the charitable trust by severing non-charitable purposes, the court should do so: Salusbury v Denton (1857) 3 K&J 529.

For the Public Benefit

With the exception of trusts for the relief or prevention of poverty (Attorney General v Charity Commission [2012] FTC/84/2011), a charitable trust must be exclusively for the public benefit. The Charities Commission’s 2013 Guidance defines ‘public’ and ‘benefit’:

Benefit: the trust must be ‘beneficial’ and not outweighed by any harm or detriment to the public.

Notably, a trust is harmful to the public if it discriminates against a protected characteristic other than as a proportionate means of achieving a legitimate aim: Catholic Care v Charity Commission [2010] EHWC 520. This is because the public’s sense of discrimination is a detriment outweighing any benefit. For example, a trust for advancing teenagers’ health but which excludes LGBTQ+ teens does not provide benefit overall.

Public: the trust must benefit ‘the public in general, or a sufficient section’ and ‘not give rise to more than incidental personal benefit’. This includes people living in a particular area, belonging to a particular community, or possessing a particular protected characteristic under the Equality Act 2010, provided it is justified to restrict the benefit to that class.

It does not include people connected by family, employment or a closed organisation, nor classes which are capriciously or arbitrarily defined.

The Charitable Purposes

The statutory heads of charity are as follows: s.3

Prevention or relief of poverty

This applies to people ‘who can fairly be said to be, according to current standards, “poor persons”, and preventing such a state among those not yet poor: Dingle v Turner [1972] AC 601; Re Coulthurst [1951] Ch 622. It must contain a power to exclude the well-off: Re Gwyon [1930] Ch 265.

Since there is no requirement that these trusts benefit the public, they can apply to a small class of private persons, included those connected through an employer or family: Re Coulthurst [1951] Ch 622; Re Segelman [1996] 2 WLR 173.

However, the class must not be so small or closed that it is essentially a trust for certain, identifiable people: Dingle v Turner [1972] AC 601.

Advancement of education

This applies to efforts to improving ‘a useful branch of human knowledge and its public dissemination’: Incorporated Council of Law Reporting for England and Wales v Attorney General [1972] Ch 73. There must be some element of teaching or educating: Re Shaw [1957] 1 WLR 729. This can include sports education: Re Dupree’s Trusts [1944] 2 All ER 443; IRC v McMullen [1981] AC 1. This kind of trust will not benefit the public if those benefited are all identifiable by their ‘personal nexus’ with the settlor or a particular organisation (e.g. an employer): Oppenheim v Tobacco Securities Trust [1951] AC 297. The same is true if trustees are required to prefer people with a particular personal nexus: Caffoor v Commissioners of Income Tax [1961] AC 584.

Fee-paying schools can only establish charitable status if they grant sufficient educational benefit to those unable afford the fees: Independent Schools Council v Charity Commission [2011] UKUT 421.

Advancement of religion

The Charities Act 2011 includes monotheism, polytheism and even atheistic or non-deist (not based on belief in a god or gods) religions: s.3(2). According to the Charities Commission, a non-deistic worldview is a religion if it involves belief in a ‘divine or transcendental being or entity or spiritual principle, which is the object or focus’ and which has a relationship with the believer involving demonstration of worship, reverence or veneration. In any case, the belief system must be sufficiently cohesive, cogent, serious, important and have an ‘identifiable positive, beneficial, moral or ethical framework’. The court must be neutral between religions: Thornton v Howe [1862] 31 Beav 14. However, proselytization or conversion of those not yet in the religion does not fall under this head: Commissioner for the Special Purpose of the Income Tax v Pemsel [1891] AC 531.

Advancement of health or saving lives

‘Health’ includes preventing or relieving disease, sickness, disability or suffering. Gifts to hospitals are normally presumed to be for this purpose unless the hospital is commercial and private or the fund will not benefit patients: Re Resch’s Will Trusts [1969] 1 AC 514. The Charities Commission has stated this head can include complementary and alternative medicine and health-based research.

Advancement of citizenship or community development

This is a very vague and broad heading. Examples include activities such as urban regeneration, promoting civic responsibility, educating communities and volunteering.

Advancement of arts, culture, heritage or science

Cases suggest only ‘good’ or ‘worthy’ arts, culture, heritage or science fall under this head: Re Delius [1957] 1 Ch 299. Judges may rely on expert evidence for these purposes: Re Pinion [1964] 1 All ER 890.

Advancement of amateur sport

A sport is something which involves mental or physical exertion and thereby promotes health or education – this includes games like chess or bridge: Re Dupree’s Deed Trusts [1945] Ch 16. According to the Charities Commission, to count as ‘amateur’ there must be open membership such that anyone who wants access to the trust’s facilities can do so.

Promotion of human rights, conflict resolution or reconciliation, or the promotion of religious or racial harmony or equality and diversity

There is a ban on ‘political’ charities’, so any charity relying on this head must establish their purposes are apolitical: National Anti-Vivisection Society v IRC [1948] AC 31. According to the Charities Commission, an organisation is political if it’s dominant purpose is to seek a specific change in domestic/foreign law or policy. If the trust seeks to advance these goals primarily via non-political means, by contrast, it may be charitable.

Advancement of environmental protection or improvement

Like the eighth head, trusts relying on this ground for their charitable status must ensure that the courts do not perceive them as political.

Relief of those in need, by reason of youth, age, ill health, disability, financial hardship or other disadvantage

A trust cannot rely on this ground if it excludes the poor, though it need not exclusively benefit the poor: Joseph Rowntree Memorial Trust Housing Association v Attorney General [1983] 2 WLR 284.

Advancement of animal welfare

A trust cannot rely on this if it only benefits specific animals (‘my dog, Tofu’). A trust for one’s pets might be a valid private purpose trust, however. A charitable trust must benefit animals, or a specific species or breed of animals, more generally. ‘Welfare’ is a broad term, including health, improved conditions, socialisation and even humane slaughter: Re Wedgewood [1915] 1 Ch 113. These trusts must take care to avoid being branded political, however: Hanchett-Stamford v HM Attorney General [2008] EWHC 330.

Promotion of the efficiency of the armed forces of the Crown or the efficiency of the police, fire and rescue services or the ambulance services

‘Fire and rescue services’ are those defined under Part 2 of the Fire and Rescue Services Act 2004. This means that private rescue services such as local mountain rescue services do not qualify. They may qualify as an ‘analogous’ charitable purpose, however.

Provision of recreational or leisure facilities: S.5 of the Charities Act 2011 recognises charitable trusts to provide recreational/leisure facilities if either of two conditions is met. 1) the trust provides facilities to those in need due to youth, age, infirmity, disability, poverty or social and economic circumstances, to improve their life conditions. 2) the trust provides the facilities to the public at large, or to all male or female members of the public at large, to improve the life conditions of those intended to use them.

Finally, the courts recognise as charitable anything sufficiently analogous to the above purposes: Scottish Burial Reform and Cremation Society v Glasgow Corp [1968] AC 138. These include providing cremation and war memorials, assisting the unemployed, promoting industry, agriculture or public amenities and rehabilitating offenders. Trusts relying on this ground must still establish public benefit: IRC v Baddley [1955] AC 572.

Failure of Charitable Trusts: Cy-près

There are a variety of reasons a charitable trust might fail. For example, the gift may be made to an organisation which does not exist, or the purpose may be impractical, ineffective or impossible: Charities Act 2011, s.62. A trust might also initially succeed, but later fail. For example, the charitable purpose may be completed with funds left over. If a charitable trust fails, cy-près becomes relevant.

What is Cy-près?

Normally when a trust fails, the property is held on resulting trust for the settlor. If this is not possible, then the property will be bona vacantia and pass to the State.

There is a third option for failed charitable trusts, however. The court has the option of applying the cy-près doctrine. This aims to reconstitute the failed trust into a valid charitable trust for an aim as close as possible to what the settlor intended: Charities Act 2011, ss.61-62. Cy-près may be administered by the High Court or the Charities Commission.

The way in which cy-près applies depends on when the trust failed or ended.

Initial Failure

Where the trust failed at the outset, the court will only apply cy-près if the settlor had a general, paramount intent to make a charitable gift: Charities Act 2011, s.15; Kings v Bultitude [2010] EWHC 1795.

  • If the gift was made to a specific organisation which no longer exists, the courts will not normally deem the settlor to have had general or paramount charitable intent even if the trust states a charitable purpose: Re Rymer [1895] 1 Ch 19; Re Spence [1979] Ch 483.
  • By contrast, if the settlor made the gift to an organisation which never existed, the court may imply a general, paramount charitable intent: Re Harwood [1936] Ch 285.

Note that if it is possible to identify a real organisation which the settlor intended, the trust will not fail just because the settlor misdescribed the intended organisation: Re Spence [1979] Ch 483.

Subsequent Failure

If a trust is initially valid but later fails, the court will apply cy-près without the need to prove that the settlor had a general, paramount charitable intent: Re Slevin [1891] 2 Ch 236.

The Charities Act 2011 also permits cy-près to be applied to surplus donations to collection boxes, raffles and similar practices: ss.63-66. Otherwise, surplus donations cannot be used cy-près unless the donors waive their right to the donation or the court gives permission under s.64.