Charitable and Purpose Trusts
Trusts > Charitable and Purpose Trusts
Candidates frequently lose marks because they fail to distinguish between trusts that have charitable purpose and those that merely appear altruistic, and they overlook the public benefit requirement that distinguishes a valid charitable trust from one that fails.
What Is Charitable and Purpose Trusts in SQE1?
A charitable trust is a trust with a purpose that falls within the definition in the Charities Act 2011. Charitable trusts enjoy significant legal advantages: they can exist in perpetuity (unlike most purpose trusts), they can benefit the public (not just named individuals), they are exempt from certain tax and legal restrictions, and they are monitored by the Charity Commission. A non-charitable purpose trust is a trust created for a purpose that does not fall within the charitable definition; most such trusts fail because equity will not enforce them absent an identifiable beneficiary.
Understanding the charitable purposes defined in the Charities Act 2011 and the public benefit requirement is essential to solving these questions. You must also understand the concept of cy-près, which allows the court to apply trust funds to a charitable purpose similar to the original purpose if the original purpose becomes impossible or obsolete.
The rules governing creation and constitution of trusts apply equally to charitable trusts; the additional requirements relate to the nature of the purpose itself.
Understanding this area is essential within the broader Trusts framework for SQE1.
Key Principles for SQE1
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Definition of Charitable Purpose (Charities Act 2011): A trust is charitable if it is established for charitable purposes and is for the public benefit. The Act lists 13 charitable purposes: relief of poverty, advancement of education, advancement of religion, advancement of health, advancement of social inclusion, advancement of the arts/culture/heritage, advancement of science, advancement of environmental protection, promotion of animal welfare, promotion of efficient use of charitable resources, promotion of equality/human rights, promotion of conflict resolution, and other purposes beneficial to the community. A trust must fall within one of these heads.
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Public Benefit Test: All charitable trusts must benefit the public or a sufficiently substantial section of the public. A trust that benefits only named private individuals is not charitable even if the purpose is altruistic. For example, a trust "for the advancement of education of my children" is not charitable because it does not benefit the public. However, a trust "for scholarships to state school pupils" is charitable because it benefits a public class.
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The Advancement of Religion: Trusts for advancement of religion are charitable if they promote religion and pass the public benefit test. Religion is broadly defined to include Christian, Jewish, Muslim, Hindu, Buddhist, and Sikh faiths, as well as secular belief systems meeting certain criteria. A trust to promote a specific sect may be valid if it advances religion in general.
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The Relief of Poverty: Trusts to relieve poverty are charitable if they benefit poor persons. The poverty must be relative; it includes not just destitution but people with insufficient means. A trust "to assist poor members of a named family" may be charitable because it has the public element of alleviating a recognized social problem.
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Non-Charitable Purpose Trusts: The General Rule: Most non-charitable purpose trusts fail because they have no ascertainable beneficiary. Equity requires that either the purpose is charitable or there is an identifiable beneficiary who can enforce the trust. A trust "for the maintenance of my dog" or "for the upkeep of my grave" is invalid because the dog and the grave are not beneficiaries in equity.
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The Denley Exception: A non-charitable purpose trust may be valid if it is not purely abstract and is tied to identifiable beneficiaries who can enforce it. In Re Denley's Trust Deed, a trust for maintaining a sports ground for employees of a company was held valid because the employees could enforce it. The purpose must benefit a class of ascertainable persons.
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Non-Charitable Purpose Trusts: The Re Astor Principles: A non-charitable purpose trust lacks standing for enforcement and lacks perpetuity. In Re Astor, trusts for purposes (such as "journalism, art, music") without a charitable purpose and without ascertainable beneficiaries were held void. The principle is that purpose trusts without charity or beneficiaries cannot be enforced.
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Cy-Près: If a charitable trust's original purpose becomes impossible, impracticable, or obsolete, the court may apply the funds cy-près — to a charitable purpose as close as possible to the original. A trust "to build a memorial to the great war" in a town that already has such a memorial could be applied cy-près to another commemorate purpose.
Exam tip
A common mistake is assuming that a trust for a charitable-sounding purpose is automatically valid. Always check: (1) Does it fall within one of the 13 heads? (2) Does it satisfy the public benefit requirement? A trust "for my elderly aunt's welfare" may have a charitable purpose (relief of poverty or advancement of health) but fails the public benefit test if it benefits only one named individual. Conversely, a trust "to provide scholarships for disadvantaged state school pupils" satisfies both tests.
How This Appears in SQE1 Questions
A scenario might involve: "T's will provides: 'My estate shall be held on trust to promote the study of medieval history and to preserve old buildings in my village.' Is this charitable?" You must identify that advancement of education and environmental protection are charitable purposes, but then check whether the trusts satisfy public benefit. If narrowed to a single village or a private collection, the public benefit may be questionable.
This is a classic SQE1 trap.
Common Mistakes Students Make
- Assuming any altruistic purpose is charitable; charity has a technical definition under the Charities Act 2011
- Confusing public benefit (trusts must benefit the public or a substantial section) with the requirement that a trust benefits a named class
- Treating non-charitable purpose trusts as always void without considering the Denley exception and cases where beneficiaries can enforce the purpose
- Overlooking the distinction between poverty (which is relative) and mere financial hardship in the context of charitable status
- Misapplying cy-près; it requires that the original charitable purpose be impossible, impracticable, or obsolete, not merely inconvenient
Quick Summary
- A charitable trust must fall within one of the 13 heads in the Charities Act 2011 and satisfy the public benefit test.
- Charitable trusts can exist in perpetuity and are not subject to the beneficiary principle; non-charitable purpose trusts generally cannot.
- The public benefit requirement means the trust must benefit the public or a substantial section; trusts benefiting only named individuals are not charitable.
- Non-charitable purpose trusts are generally void unless they are tied to ascertainable beneficiaries who can enforce them (Denley exception).
- Cy-près allows the court to apply charitable funds to a similar charitable purpose if the original purpose becomes impossible or impracticable.
Want to test this now? Try a few SQE1-style questions below before moving on.
Test Yourself
Test yourself
Quick check questions based on this article.
Question 1
Scenario
A wealthy donor executes a trust deed transferring £1 million to trustees 'for the advancement of education among underprivileged children in the City of Manchester.' The trust deed requires the trustees to apply the income towards scholarships, mentoring programmes and after-school clubs for children from low-income families. The trustees are given no beneficial interest in the fund. The donor's solicitor advises that the trust should be registered with the Charity Commission. A local councillor, who is acquainted with the donor, expresses concern that the trust is too narrowly focused on one city and may not benefit sufficient numbers of people to qualify as charitable.
Which of the following best describes the validity of the trust?
Question 2
Scenario
A wealthy businessman executes a trust deed transferring £500,000 to two trustees. The deed provides that the fund is to be used 'for the promotion of amateur sport within the local community.' The deed does not name any individual beneficiaries and does not specify which sports are to be promoted. The businessman is a keen amateur cricketer who has funded local cricket clubs in the past. The trustees are uncertain whether the trust qualifies as a charitable trust. They are aware that a non-charitable purpose trust would generally be void for lack of a beneficiary to enforce it. The Charities Act 2011 lists the promotion of amateur sport as a charitable purpose under section 3(1)(g). However, the trustees are concerned that 'local community' may be too restrictive to satisfy the public benefit requirement. The trustees also note that the deed contains no cy-près clause. A solicitor advises the trustees that the public benefit requirement has two elements under the Charities Act 2011. The solicitor notes that the businessman's personal interest in cricket does not disqualify the trust from charitable status.
Which of the following best describes whether the trust is valid as a charitable trust?
Question 3
Scenario
A wealthy businessman dies leaving a will that creates a trust of £500,000 'for the promotion of fox hunting in the county of Hampshire.' The will appoints two trustees and specifies that the fund should be used to maintain hunt kennels, purchase horses, and fund training for new riders. The trustees seek legal advice on whether the trust is valid. The Charity Commission has previously refused to register organisations with similar purposes as charitable bodies. The trustees argue that the trust promotes rural community cohesion and outdoor recreation, which they say should qualify as purposes beneficial to the community. No specific beneficiaries are named in the trust. The residuary estate passes to the businessman's nephew under the will. The nephew argues that the trust is void and the £500,000 should fall into residue. The trust does not fall within any of the recognised exceptions to the beneficiary principle. The businessman left no letter of wishes or other supplementary documentation. The Hunting Act 2004 prohibits hunting wild mammals with dogs, subject to certain exemptions.
Which of the following best describes the likely validity of the trust?
Practice with full exam-style questions
Related Topics
- SQE1 Trusts: Complete Guide
- Creation and Constitution of Trusts
- Types of Trusts
- Beneficiaries' Rights
Practise Charitable and Purpose Trusts Questions for SQE1
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