Purpose trusts

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  • Created by: Nikki
  • Created on: 12-04-16 21:08

What is a purpose trust?

Instead of seeking to benefit a certain specified group of individuals, a settlor may want to see his property used to further a particular cause or objective

Beneficiary principle --> trust must have beneficiaries to be valid 

Prohibition only applies to purpose trusts and not to powers for purposes 

Distinguihsing persons and purpose trusts
- question turns on whether the trustee is under an obligation to benefit some person or group, with the manner of such benefit secondary, in which case it is a person trust, or wehter his oblgiation is to apply the fund for the stipulated purpose irrespective of what benefit, if any, any individuals happen to derive from this, in which case teh trust is a purpose trust
- matter of interpretating the trust deed and words used by settlor in order to find his true intentions
- matter of construction 
- Re Bowes; Re Andrew's Trusts

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'principle of interpretation'

Explained by Buckley LJ in Re Osoba
- where testator has given whole of fund to B he is regarded as having manifested an intention to benefit that person to full extent of subject matter, notwithstanding that he may have expressly stated that the gift is made for a particular purpose, which may prove to be impossible of performance or which may not exhaust subject matter
- in order not to frustrate testator's express intention that whole subject matter be applied for benefit of B, purpose statement is treated as merely a statement of testator's motive in making gift 

So a trust in such form can be interpreted in 3 ways

  • as a purpose trust --> will fail due to beneficiary principle
  • settlor's ref to purpose has no legal significance and so can be ignored, in which case the trust will be valid though often at the cost of distorting the settlors intentions
  • trust is a person trust and is not threatened by beneficiary principle, but ref to purpose shouldn't be ignored --> amount of trust fund which B is to receive is determined by ref to what is or would be needed to further relevant purpose --> poss example of this in Re Sanderson's Trusts 
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Exceptions to the rule

Persons trusts are not true exceptions to beneficiary principle --> they are trusts construed in such a way as to satisfy it

- enforced by A-G and the Charity Commission

- no principle or policy justifying or explaining why trusts for these particular purposes work
- 3 types:
(1) trusts to look after and provide for specific animals
(2) trusts for the construction and/or maintenance of graves and funeral monuments
(3) trusts for saying of private masses
- these categories are not to be extended even by analogy --> e.g. Re Endacott 

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Exceptions to the rule (2)


  • suggests that a purpose trust will be valid so long as carrying out the purpose will directly or indirectly benefit an ascertainable class of individuals, since in such cases there will be people who can enforce the trust
  • only hurdles set down:
    • the carrying out of the purpose must benefit an individual or individuals in a way which is not too remote or indirect
    • it must be possible to ascertain the individuals who would be so benefitted 
  • on this view, the trustee's oblgiation is to apply the property in pursuance of the stated purpose
  • those people who benefit and may enforce the trust are not to be regarded as beneficiaries,at least in the orthodox sense --> no S v V right
  • tendency in later cases to deny signfiicance and interpret it in line with orthodox trust law
    • Re Lipinski's Will Trusts --> Oliver J seemed to treat Denley as a Bowes type of case where the purpose is disregarded and the trust upheld as a trust for individuals
    • Re Grant's Will Trusts --> Vinelott Jheld that Denley 'fall altogether outside' the cateogry of purpose trusts 
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Other requirements of purpose trusts

(1) purposes must be defined with sufficient certainty for court to be able to enforce the trust 
- Re Astor's Settlement --> insufficient guidance to T and court as to how trust property was to be applied

(2) clearly defined purpose trust will fail if purpose is regarded as capricious or unlawful

(3) if they do not satisfy the rulea gainst perpetuities
- trusts must have a time limit
- traditional period framed in terms of a 'life in being' plus 21 years --> reamins relevant period for non-charitable purpose trusts
- elsewhere rule has been overtaken by statute

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Unincorporated associations (1)

Typical definition offered by Lawton LJ in Conservative and Unionist Central Office v Burrell --> but may not be most helpful starting point

Best view = wherever two or more people join together and pool property for a common purpose but haven't formed themselves into a company 

Lack of incorporation matters since companies have their own distinct legal perosnality and so company as a distinct legal entity owns the company assets 

How is property held?

  • assets beneficially held by some person or group of perons --> presumable members of society as people principally intended to benefit from its activities 
  • contract holding theory --> recognised by courts in Neville Estates Ltd v Madden --> contract between all members governing application of property 
  • society will usually have a set of formal or informal rules or conventions detailing how group's property is to be used etc
  • when members join the group they (at least implicitly) agree to such arrangemnts 
  • accordingly these rules or conventions can be understood as a contract between all present members of the group 


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Unincorporated associations (2)

Gifts to UAs -->

  • Re Recher
  • take effect in favour of existing members of associaiton as an accretion to funds which are subject-matter of the contract --> falls to be dealt with in same way as funds which members themselves have subscribed 
  • 2 elements to Re Recher analysis -->
    • (1) beneficial transfer of property to some or all of the members
    • (2) contract which exists between members of group, which sets down their rights and duties in respect of their use of the proeprty 
    • applies only where both elements are present
    • problems if donor does not appear to have transferred property to group and members beneficially 
    • Re Lipinski's Will Trusts
      • if we intepret donor as having directed UA to use property only for certain identified prupose this will amount to purpose trust and will fail
      • but transfer will not fail if we can disregard donor's ref to purpose and treat is as an unqualified beneficial transfer to the group
      • can do so where dono'rs intention in identifying particular purpose for which property is to be applied to to benefit members of UA (intnetion to benefit is paramount) 
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Dissolution of unincorporated associations (1)

At first though tthat there were 2 possible solutions
(1) it goes back to those who had contributed the property on resulting trust
(2) it goes to Crown as bona vacantia 
- e.g. Re West Sussex Constab Fund

Contract holding theory provides the answer:

  • members hold the proprety beneficially, and contract is all that prevents members from walking away with their share of the group property
  • contracts can be waived or varied by he agreement of all parites
  • so if the members unanimously decide to waive the contract which stiuplates how the property is to be used, they are then free to take their share --> this then happens when group is dissolved 
  • default position that they are each entitled to an equal share of UA property precisely because they are equally beneficially enittled to that property 

Members are able to agree some other basis of distribution of group's property upon dissolution --> even where there is no express term to that effect, courts ahve been ready to imply a term that the property is to be distrubted on some other baiss if they consdier that this is waht the members intended

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Dissolution of unincorporated associations (2)

Only those who are members at the time of dissolution can claim any share of the property 
- unless there is exceptionally some rules to contrary, past members hav eno rights in group's assets
- means that it is important to know exactly when the association was dissolved

IF there is only one member left:

  • initially throught that this was an exception to general rule that property goes to remaining member(s) but this was rejected in hancett-Stamford
  • death of second last B necessarily brings an end to the contract which previously bound the emmbers but leaves the final beneficiary with the sole beneficial interest 
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Political parties

Re Grant; Conservative Central Office v Burrel --> suggest that political parties are not subject to the same rules/solutions as UAs --> on the basis that the contract holding theory erquires that the members of teh group are the only parties to the contract --> here the relevant rules were partly set by outsiders

Conservative case --> Brightman sggested that we should understand donors to party as giving a mandate to party treasurer, which entitles him then to use the property (only) for party purposes --> involves a personal agency relaitonship, whereby the donor gives treasurer permission to use property in certain way and treasurer undertakes duty to so use it

Can be argued that courts were too quick to reject the contract holding theory in these cases:
- essence of the theory is that property isheld by a collection of people beneficially but that they cannot do what they like with it because of the existence of a set of rules which is legally binding on them
- must also be the case with poltiical parties --> who sets those rules and wehther we should veiw them as representing a contract is for present purposes unimportant
- if this is true it must also be possible for donors to transfer property to politial parties such that they take effect as accretions to teh party's funds, with the beneficial interest passing to those beneficially entitled to the party's existing assets and falling to be dealth with in accordance with rules that govern the use of all such property 
- Re Recher can be applied

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UAs and Denley exception

Where UA has a purpose which is abstract or which would benefit an uncertain class, we have to fall back on contract holding theory 

In all other cases the contract holding theory and Denley-type purpose trust provide alternative, mutually exclusive answers to how UA's property is held 

2 possible implications:

(1) if we say that property is held on purpose trust, there is no possibility of members dividing property up among themselves as they can under the contract holding theory --> not beneficially entitled to property and so have no claim to or interest in it

(2) if the association comes to an end, the property would not go to the members as beneficial owners, as agin they have no beneficial interest in the property --> purpose trust on which property held woul dhave failed and so, in principle, whatever property is left should go back to whoever contributed it on resulting trust 

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Justifying the prohibition (1)


Traditional explanation = without beneficiaries there is nobody to enforce the trust (Morice v bishop of Durham)

This argument rests on 2 propositions:

(1) Trusts must be capable of enforcement
- is this really necessary?
- danger of unenforceabl etrusts is that, without anyone policing them, the trust may not be performed
- problem because this would then defeat whatever goods or principles justify recognising the trust in teh first place
- but it seems that if our concern is to ensure that settlor's intentions are respected, the rules we have adopted are counter-productive 
- by prohibitn gpurpose trusts the courts guarantee that S's intentions will be defeated
- if we didn't require enforcement then these trusts might be performed - is some chance better than none?

(2) only beneficiaries can enforce trusts 
- perhaps they are the ideal enforcers, given their clear interest in seeing trsut carried out, but other people could do the job
- settlor; independent enforcer; interested TP

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Justifying the prohibition (2)


Trusts need beneficiareis because there must be someone to whomt he trustee's duties are owed. If there isn't, these duties must be illusory, and without any duties, there can be no trust

But is this true? Example of duties not owed to others: Criminal law duties? Charitable trusts?


Trusts are akin to gifts, an alt means of trasnferring beneficial ownership of property from A to B. Just as you can't make a gift to a purpose, so you can't have a trust for a purpose, but need someone to receive that beneficial interst

This fits with variou sother aspects of trust law:
- trusts won't fail for want of a trustee
- rule in S v V
- rule that settlors drop out

But existence of exceptions, notably charitable trusts

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Justifying the prohibition (3)


Pragmatic concerns

Beneficiary principle is dispensed with by a number of 'offshore' jurisdcitions to encourage others to set up trusts in those jurisdiction

Why? Distances property from individuals, making it harder to tax or to recover by creditors, authorities

Alt, beneficary principle reflects no desire to stop settlors using their property to promote such pruposes, but simply a choice to devote legal resources to more serious or more valuable projects

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