Charitable trusts and non-charitable purpose trusts - Distin...

Learning Outcomes

This article outlines the key differences between charitable trusts and non-charitable purpose trusts. It explains the general requirement for ascertainable beneficiaries in private trusts (the beneficiary principle) and why non-charitable purpose trusts typically fail. It also covers the exceptions to this rule and contrasts these trusts with charitable trusts, which must meet specific criteria under the Charities Act 2011, including having a recognised charitable purpose and satisfying the public benefit test. Understanding these distinctions is essential for applying trust law principles in the SQE1 assessments. In addition, it clarifies the different perpetuity regimes for trusts for individuals and for non-charitable purpose trusts, the scope and limits of the anomalous exceptions (animals, monuments and graves, private masses), and the Re Denley model where ascertainable beneficiaries can enforce a seemingly purpose-based trust. It further explores the enforcement and cy-près mechanisms in charitable trusts (including initial versus subsequent failure), the exclusivity requirement and the impact of political purposes, and the consequences of invalidity (typically an automatic resulting trust in favour of the settlor or their estate).

SQE1 Syllabus

For SQE1, you are required to understand the differences between charitable and non-charitable purpose trusts, including the requirements for charitable status and the limited exceptions allowing non-charitable purpose trusts, and to apply the relevant legal principles to identify valid trusts and the consequences of invalidity, with a focus on the following syllabus points:

• The beneficiary principle and its implications for purpose trusts.
• The requirements for a valid charitable trust under the Charities Act 2011, including charitable purposes and public benefit.
• The limited exceptions allowing non-charitable purpose trusts (e.g., trusts for the maintenance of specific animals or monuments, Re Denley trusts).
• The rules against perpetuities as they apply differently to charitable and non-charitable purpose trusts.
• The consequences of a trust failing for lack of a valid purpose or beneficiary.
• The distinction between remoteness of vesting for trusts for individuals (typically a statutory 125-year period) and the rule against inalienability for non-charitable purpose trusts (generally a 21-year maximum).
• The cy-près doctrine for charitable trusts, including when general charitable intention is needed (initial failure) and when it is not (subsequent failure).
• The impact of political purposes on charitable status and the possibility of severing charitable from non-charitable elements where appropriate.

Test Your Knowledge

Attempt these questions before reading this article. If you find some difficult or cannot remember the answers, remember to look more closely at that area during your revision.

1. Which principle generally requires trusts to have ascertainable human beneficiaries?
   1. The rule against perpetuities
   2. The cy-près doctrine
   3. The beneficiary principle
   4. The public benefit test
2. Which of the following is NOT a requirement for a valid charitable trust under the Charities Act 2011?
   1. Must be for a recognised charitable purpose
   2. Must be for the public benefit
   3. Must have specifically named individual beneficiaries
   4. Must be exclusively charitable
3. A trust set up to maintain the testator's favourite pet cat is likely to be:
   1. A valid charitable trust for animal welfare.
   2. A valid non-charitable purpose trust, provided it complies with perpetuity rules.
   3. Void for lack of certainty of intention.
   4. Void due to the beneficiary principle with no applicable exception.
4. The cy-près doctrine allows a court to:
   1. Appoint new trustees for a failed private trust.
   2. Vary the terms of any trust if the beneficiaries consent.
   3. Redirect funds from a failed charitable trust to a similar charitable purpose.
   4. Extend the perpetuity period for a non-charitable purpose trust.

Introduction

When creating a trust, the settlor usually intends to benefit specific individuals or a defined group of people. However, some trusts are established not for people, but to achieve a particular purpose. These are known as purpose trusts. English law draws a significant distinction between trusts for charitable purposes and trusts for non-charitable purposes. Generally, for a trust to be valid, it must have ascertainable beneficiaries who can enforce it – this is known as the beneficiary principle. Purpose trusts often conflict with this principle. Charitable trusts form a major exception, enjoying significant legal advantages, provided they meet strict statutory criteria. Non-charitable purpose trusts, on the other hand, are typically void, save for a few limited and anomalous exceptions. This article examines these distinctions, focusing on the requirements and enforceability of each type, the different perpetuity regimes, and the practical outcomes when a purported trust fails (commonly, an automatic resulting trust to the settlor or their estate).

Key Term: beneficiary principle
The legal principle stating that, for a private express trust to be valid, it must have ascertainable human beneficiaries who are capable of enforcing the trust against the trustees.

Purpose trusts, by definition, are created to achieve an objective rather than to benefit specific people. Therefore, they prima facie offend the beneficiary principle. A trust for an abstract purpose like 'promoting world peace' would typically be void because there is no specific individual who can go to court and compel the trustees to carry out that purpose. The rationale is that the court needs an enforcer to supervise the trustees’ performance; without beneficiaries, there is no equitable ownership to protect and no party with standing. Classic authority emphasising this requirement includes Morice v Bishop of Durham, where it was stated that “there must be somebody, in whose favour the court can decree performance.” Conversely, charitable trusts are enforced by the Attorney General and regulated by the Charity Commission, which substitutes public oversight for private enforcement.

The Beneficiary Principle

The general rule is that a trust must have ascertainable beneficiaries capable of enforcing the trustees' duties. Without beneficiaries, there is no 'owner' of the equitable interest and no one to hold the trustees accountable to the court. This fundamental requirement is known as the beneficiary principle. It manifests in practice in two linked ways:

• If a purported express private trust lacks beneficiaries (or has conceptually uncertain objects), the trust fails, and the property normally results back to the settlor or the settlor’s estate under an automatic resulting trust.
• If a trust is framed as an abstract purpose (not charitable), it usually fails because the court cannot police compliance with a general objective and there is no beneficiary with standing.

Cases that illustrate the principle include Re Astor’s ST (purposes concerning newspapers and international relations held invalid) and Re Shaw (research into a new alphabet held invalid), both underscoring that private purpose trusts without beneficiaries are not generally recognised. By contrast, trusts for individuals—even large classes—can be valid if the class is conceptually certain and the trust is administratively workable (e.g., discretionary trusts applying the given postulant test), and charitable trusts can be valid even for abstract purposes because of special rules regarding enforcement and public benefit.

Non-Charitable Purpose Trusts (NCPTs)

NCPTs are trusts established for purposes that are not recognised as charitable by law. Due to the beneficiary principle, NCPTs are generally void.

Why NCPTs Usually Fail

1. Lack of Beneficiaries: There is no one to enforce the trust (Morice v Bishop of Durham (1804)).
2. Uncertainty: The purpose may be too vague or uncertain for a court to control or enforce.
3. Perpetuity: NCPTs are subject to the rule against perpetuities, specifically the rule against inalienability, which prevents capital being tied up indefinitely. For non-charitable purpose trusts, the duration is generally limited to 21 years because there are no “lives in being” to anchor the period; the statutory 125-year period introduced by the Perpetuities and Accumulations Act 2009 applies to trusts for individuals (remoteness of vesting), but section 18 preserves the common law rule limiting the duration of non-charitable purpose trusts.
4. Public Policy/Illegality: A trust with an illegal or immoral objective is void. For example, the former acceptance of a trust promoting foxhunting has been overtaken by statutory prohibitions, rendering such a trust invalid as contrary to law.

Key Term: non-charitable purpose trust
A trust established to achieve a specific purpose that is not recognised as charitable under the law. Such trusts are generally void unless they fall into specific, limited exceptions.

Exceptions to the Rule: Valid NCPTs

Despite the general rule, courts have recognised certain exceptions, often described as anomalous or 'trusts of imperfect obligation' because they lack an enforcer. These exceptions are narrowly construed (Re Endacott [1960]) and must comply with the rule against perpetuities (typically by time-limiting the trust to 21 years or making the capital exhaustible).

1. Trusts for the maintenance of specific animals: Trusts for the care of specific pets (e.g., 'my favourite horse', Re Dean (1889)) can be valid, provided they are limited in duration to the perpetuity period (often inferred from the animal's probable lifespan). This differs from charitable trusts for animal welfare generally, which serve the public benefit.
2. Trusts for the erection or maintenance of monuments and graves: A trust to build a monument is often treated as completable within 21 years. However, a trust for ongoing maintenance must be expressly limited in duration (e.g., 'for 21 years' or 'so long as the law allows') to be valid (Musset v Bingle (1876) and Re Hooper [1932]).
3. Trusts for the saying of private masses: Masses said in public may be charitable (advancement of religion), but trusts for private masses can be valid NCPTs if limited in perpetuity (Bourne v Keane [1919]).

These exceptions are constrained. Courts emphasise that they are not to be expanded (as in Re Endacott, where “a useful memorial” was too uncertain). Moreover, where the purpose shades into illegality or conflict with public policy, the trust will be void.

Re Denley Trusts

A further significant exception arises from Re Denley's Trust Deed [1969]. A trust expressed as being for a purpose can be valid if it directly or indirectly benefits ascertainable individuals in a tangible way, and those individuals have standing (locus standi) to enforce the trust. These are sometimes described as “purpose trusts with beneficiaries” and are outside the mischief of the beneficiary principle because enforcement is possible by the persons benefited.

Key Term: Re Denley trust
A type of purpose trust held to be valid because, although expressed as a purpose, it directly or indirectly benefits ascertainable individuals who can enforce it.

For a Re Denley trust to be valid:

• The purpose must provide a tangible benefit to individuals (e.g., use of land as a sports ground).
• The class of individuals must be ascertainable (the given postulant test is a useful guide).
• The trust must comply with the rule against inalienability (limit to 21 years or be exhaustible).
• The construction must allow supervision and enforcement by the persons intended to benefit; the trustees’ duties must be sufficiently certain.

These trusts are particularly relevant in workplace and community settings (e.g., sports or recreational facilities for employees). They cannot be charitable if the class is defined by a personal nexus (such as employees of a particular company), but they can still be valid as private trusts under Re Denley provided beneficiaries are ascertainable and perpetuity constraints are met.

Worked Example 1.1

Arnold's will leaves £50,000 to trustees 'to provide and maintain a sports ground for the employees of my company, XYZ Ltd, for the next 20 years'. XYZ Ltd has 50 employees. Is this trust likely to be valid?

Answer:
This appears to be a trust for a purpose (providing a sports ground). It is unlikely to be charitable due to the 'personal nexus' test (benefiting only employees of a specific company). However, it could be valid as a Re Denley trust. The employees are ascertainable individuals who receive a direct, tangible benefit from the sports ground and could enforce the trust. The trust is expressly limited to 20 years, complying with the perpetuity rule for NCPTs. Therefore, it is likely valid.

Worked Example 1.2

Diana’s will leaves £6,000 “to maintain my grave and headstone in Rosehill Cemetery for as long as the law allows.” The executor asks whether the gift is valid.

Answer:
This is an anomalous non-charitable purpose trust for grave maintenance. It must be limited to the permissible perpetuity period to avoid tying up capital indefinitely. The phrase “for as long as the law allows” is a recognised way to limit the trust to the 21-year period required for non-charitable purpose trusts. The gift is therefore valid, subject to the available funds being used for that period.

Worked Example 1.3

Esha leaves £5,000 “for private masses to be said for my soul.” There is no express time limit. Is the disposition valid?

Answer:
Trusts for private masses can be valid non-charitable purpose trusts if limited to the perpetuity period. Without an express limit, a court may seek to construe the will so that the trustees can exhaust the capital within a period that complies with the rule against inalienability. If construction cannot save it (for example, if it implies an indefinite obligation to use income only), the trust may fail unless the will can be interpreted to permit spending capital and thereby end the trust within 21 years.

Charitable Trusts

Charitable trusts are a major exception to the beneficiary principle and perpetuity rules. They are purpose trusts recognised and regulated by law due to their benefit to society.

Requirements for Charitable Status (Charities Act 2011)

To be a valid charity, a trust must meet three key requirements set out in the Charities Act 2011:

1. Charitable Purpose: The trust's purpose must fall within one or more of the descriptions of purposes listed in section 3(1) of the Act. These include preventing or relieving poverty, advancing education, advancing religion (including beliefs without a deity), advancing health or saving lives, advancing citizenship or community development (including regeneration), advancing arts, culture, heritage or science, advancing amateur sport, advancing human rights, conflict resolution or reconciliation, promoting religious or racial good relations or equality and diversity, advancing environmental protection or improvement, relieving those in need because of youth, age, ill-health, disability, financial hardship or other disadvantage, advancing animal welfare, and promoting the efficiency of the armed forces or emergency services. Recreational charities are also recognised (Charities Act 2011, s.5), where facilities are provided in the interests of social welfare.
2. Public Benefit: The purpose must be for the public benefit. This has two aspects:
   • Benefit aspect: The purpose must provide an identifiable benefit, and any detriment must not outweigh the benefit. For instance, a museum of works with no artistic merit may fail the benefit aspect.
   • Public aspect: The benefit must be available to the public at large or a sufficient section of the public. A trust benefiting a group defined by a personal nexus (e.g., family members, employees of a specific company) generally fails this test, except for poverty relief trusts (which can operate within a narrow class where need is objectively identified). Fee-charging charities must not exclude the poor; trustees must ensure more than token provision for those of limited means, and consider the overall means of ensuring access (Independent Schools Council v Charity Commission [2011]).
3. Exclusively Charitable: The trust's purposes must be wholly charitable. If a trust mixes charitable purposes with non-charitable ones (e.g., political purposes like campaigning for a change in law), it will generally fail (McGovern v Attorney-General [1982]). Incidental private benefits do not prevent charitable status, but the predominant purposes must be charitable, and any private benefit must be merely incidental to achieving the charitable aims.

Key Term: charitable purpose
A purpose falling within the list defined in section 3(1) of the Charities Act 2011, such as the relief of poverty or advancement of education.

Key Term: public benefit
The requirement that a charitable trust's purpose provides an identifiable benefit to the public or a sufficient section thereof, without unduly restrictive criteria (like personal connections or prohibitive fees).

A few further points refine these requirements:

• Religious charities can include belief systems recognised in modern law (e.g., the Supreme Court’s approach to religious worship in Hodkin concerning Scientology), provided they fall within the statutory framework and meet public benefit.
• Where a trust directs trustees to divide gifts between charitable and non-charitable objects, the charitable portion may be severed (if the language permits), but a general gift “for charitable or benevolent purposes” fails for lack of exclusivity (benevolent is not necessarily charitable).
• Research can be charitable if it is useful and disseminated, reflecting the need for public benefit and transparency.

Advantages of Charitable Status

Charitable trusts enjoy significant legal advantages:

• Enforcement: Enforced by the Charity Commission and/or the Attorney General, overcoming the beneficiary principle issue.
• Certainty: Less strict certainty requirements apply compared to private trusts. Uncertainty of objects is not fatal; even abstract purposes are acceptable if charitable.
• Perpetuity: Exempt from the rule against inalienability and not subject to remoteness of vesting like private trusts. Charitable trusts may be perpetual.
• Tax Relief: Benefit from substantial tax exemptions (income tax, corporation tax, capital gains tax, inheritance tax reliefs).
• Cy-près Doctrine: If the original purpose fails or becomes impossible/impracticable, the court or Charity Commission can apply the funds to a similar charitable purpose. For initial failure (e.g., a named charity never existed), general charitable intention may be required; for subsequent failure (e.g., a charity ceases to exist after the gift vests), cy-près can be applied without proving general charitable intention.

Key Term: cy-près doctrine
A legal doctrine allowing the funds of a failed charitable trust to be applied to the nearest possible alternative charitable purpose, rather than resulting back to the settlor.

To situate the doctrine:

• Initial failure: The court looks for general charitable intention to avoid a resulting trust to the settlor’s estate. Indicators include multiple charitable gifts in the will or purposes framed broadly (e.g., animal welfare generally rather than a single named shelter).
• Subsequent failure: Once the gift has vested, and the charity later becomes impossible or impractical, cy-près is available without the need to prove intention; the goal is to keep the funds within charity.

Worked Example 1.4

Beatrice leaves £100,000 in her will 'to campaign for a ban on fox hunting'. Is this likely to be a valid charitable trust?

Answer:
No. Campaigning for a change in the law is considered a political purpose. Political purposes are not charitable. Therefore, the trust fails the requirement that its purposes must be exclusively charitable. It cannot be a valid NCPT either, as it doesn't fall within the limited exceptions. The £100,000 would likely fall into the residue of Beatrice's estate (automatic resulting trust).

Worked Example 1.5

Charles establishes a trust to provide scholarships for 'poor and deserving students resident in the County of Kent'. Is this likely to be a valid charitable trust?

Answer:
Yes, this is likely valid. The purpose falls under both the relief of poverty and the advancement of education. The public benefit requirement is likely met: there's an identifiable benefit (education/financial relief), and the class 'residents of the County of Kent' is a sufficient section of the public (geographic limitation is usually acceptable). Although restricted to the 'poor and deserving', trusts for poverty relief have more lenient public benefit rules regarding personal connections. The purpose appears exclusively charitable.

Worked Example 1.6

Fiona’s will gives “£50,000 to my trustees to use the income to provide music scholarships to the children of employees of Bluebell Textiles Ltd.” Is the gift charitable?

Answer:
The advancement of education is a charitable purpose, but the public benefit test is not satisfied where the potential beneficiaries are defined by a personal nexus (employment by a specific company). The trust is not charitable (Oppenheim v Tobacco Securities Trust). Unless it can be severed or re-framed (it is unlikely), the gift will fail as a charitable trust; it cannot be saved as a non-charitable purpose trust. The funds will most likely go by resulting trust to the testator’s estate.

Distinctions Summarised

Exam Warning

Be careful not to confuse trusts for animal welfare generally (which can be charitable) with trusts for the care of specific animals (which fall under the non-charitable purpose trust exceptions and must comply with perpetuity rules). Similarly, trusts for public religious services may be charitable, while trusts for private masses may be valid NCPTs if limited in duration. A trust framed for employees of a named company is generally not charitable (personal nexus), but might be saved as a Re Denley trust if ascertainable employees are directly benefited and enforcement is possible.

Revision Tip

When analysing a purpose trust scenario, always ask:

• Is the purpose charitable under the Charities Act 2011?
• Does it satisfy the public benefit test (both benefit and public aspects)?
• Is it exclusively charitable?
  If 'yes' to all, it's a valid charitable trust. If 'no' to any, ask:
• Does it fall within the Re Denley exception (benefit ascertainable individuals), with the trust limited in duration or capital exhaustible?
• Does it fall within the anomalous exceptions (animals, monuments, private masses), and is it perpetuity-compliant?
• Is there any illegality or public policy issue?
  If it doesn't fit any valid category, it is likely void and the property will result back to the settlor or their estate.

Key Point Checklist

This article has covered the following key knowledge points:

• The beneficiary principle generally requires trusts to have ascertainable human beneficiaries for enforcement.
• Non-charitable purpose trusts (NCPTs) usually fail due to the beneficiary principle and perpetuity rules (rule against inalienability).
• Limited exceptions exist for NCPTs, including trusts for specific animals, monuments, private masses (if perpetuity compliant), and Re Denley trusts benefiting ascertainable individuals.
• Charitable trusts are a major exception, valid if they meet the Charities Act 2011 criteria: charitable purpose, public benefit, and exclusivity.
• Charitable trusts are exempt from the beneficiary principle and perpetuity rules and benefit from the cy-près doctrine and tax advantages.
• The public benefit test requires both a recognisable benefit and a sufficiently public class; personal nexus defeats charitable status (save for poverty relief).
• Political purposes invalidate charitable status; incidental private benefits may be acceptable if subordinate to charitable aims.
• When a trust fails, the usual consequence is an automatic resulting trust returning the property to the settlor or the settlor’s estate.

Key Terms and Concepts

• beneficiary principle
• non-charitable purpose trust
• Re Denley trust
• charitable purpose
• public benefit
• cy-près doctrine