Charitable Trusts

What are the approaches taken to determine whether a proposed trust, which appears to provide for a novel purpose not found to be charitable or uncharitable by a previous judicial decision is charitable? Are any reforms of the law indicated? - Justin Santiago

The question refers to the fourth category of charitable trusts called trusts for other analogous purposes within the spirit and intendment of the Preamble to the Statute of Charitable Uses 1601 which was distilled by Lord Mcnaghten in the case of Commissioners of Income Tax v Pemsel. This fourth category allowed for charitable trusts other than those outlined in the first three categories outlined in the preamble namely trusts for the relief of poverty, trusts for the advancement of religion and trusts for the advancement of education.

This fourth category of trusts includes a purpose which confers a benefit on the public Incorporated Council for Law Reporting Society v AG and which must be wholly and exclusively chartable.

Beneficial to the community would mean that a charitable trust must have a sufficient element of public benefit in order to attain charitable status i.e. it must not be confined to a small section of the population Neville Estates v Madden and there must be no denying any element of public participation in the purpose : Oppenheim v Tobacco Securities Trust Co 1951. Oppenheim is generally taken to have decided (at least for educational trusts) that a public purpose trust cannot exist where there is a “personal nexus” between the donor and the beneficiaries.

The exclusively charitable requirement was outlined in Inland Revenue Commissioners v City of Glasgow Police Athletic Association [1953] 1 All ER 747, the House of Lords decided that a gift to the City of Glasgow Police Athletic Association was not charitable on the grounds the charitable purpose namely, improving the efficiency of the Police Force, was purely incidental to the non-charitable purpose of providing recreational activities for members of the force.

For the fourth category it is not enough simply to show that the purpose confers a benefit on the public – inherent in the purpose that it is beneficial to the community – it must also be shown to be a charitable trust – AG v National Provincial and Union Bank of England – it must be analogous to purposes which are found in the Preamble : Williams v IRC. The approach of the courts is to treat the examples as stated in the preamble as a means of guidance in deciding on the validity of the relevant purpose. Two approaches have been adopted by the courts namely;-

1. Reasoning by analogy : the approach here is to ascertain whether a purpose has some resemblance to an example as stated in the preamble or to an earlier decided case which was considered charitable : Scottish Burial Reform and Cremation Society v City of Glasgow Corporation : provision of a crematorium was considered charitable by analogy with the repair of churches as stated in the preamble.

2. The spirit and intendment of the preamble : this approach is much wider than the previous approach. The courts decide if the purpose of the organization is within the spirit and intendment or within the equity of the statute unhindered by the specific purposes as stated in the preamble : Incorporated Council of Law Reporting v AG - if a purpose is shown to be beneficial to the community per se this should be enough to guarantee charitable status unless some positive harm or unwanted effect can be proven this is the public benefit approach – tainted by politics McGovern v AG.

3. Beneficial to the community would mean that a charitable trust must have a sufficient element of public benefit in order to attain charitable status i.e. it must not be confined to a small section of the population or be so limited by the stipulations of the testator as to deny an element of public participation in the purpose. Although the limitation on the class of persons who may derive a benefit from the charity does not destroy the public character of the trust, a second or third limitation may well make it so difficult for the public at large to qualify for the charitable benefit that there is no real public benefit at all : IRC v Baddeley. In Dingle v Turner (1972) a trust to benefit a company's poorer employees was held to be charitable, despite the strong, but much criticised message of Oppenheim v Tobacco Securities Trust Co 1951. Oppenheim is generally taken to have decided (at least for educational trusts) that a public purpose trust cannot exist where there is a “personal nexus” between the donor and the beneficiaries which confirmed the test in Re Compton which stated that lacking the essential element of public benefit if the potential class of persons likely to benefit are united by a common personal bond.

4. Reference to the identification of the objects as exclusively charitable. In Inland Revenue Commissioners v City of Glasgow Police Athletic Association [1953] 1 All ER 747, the House of Lords decided that a gift to the City of Glasgow Police Athletic Association was not charitable on the ground that the trust funds were capable of being devoted for both charitable and non-charitable purposes. The charitable purpose namely, improving the efficiency of the Police Force, was purely incidental to the non-charitable purpose of providing recreational activities for members of the Force. Lord Normand declared:

The Charities Act 2006 although not providing a statutory definition of charity has attempted to reform the law on charities and extended the fourfold categorization in Pemsel to 12 though some of this is little more than a codification of earlier decisions on the fourth head including advancement of advancement of amateur sports, advancement of human rights – McGovern v AG, advancement of animal welfare, citizen and community development – Williams v IRC and expanded on the category of religion to include belief in more than one god and religion which does not involve belief in a god and the retention even the expansion of the analogy approach. However the definition of charity in S1(1) is still not clear and the public benefit test requirement although included under S3 of the act is still not properly defined. Section 3(3) consolidates the case law meaning of public benefit. This involves a two step test of demonstrating a benefit to society (as mentioned above) and that those eligible to receive benefits must comprise a large enough group to be considered as the public and without a personal or private relationship being used to limit those who may benefit.

The Charities Act 2006 attempted to resolve the public benefit test requirement. Section 3(3) consolidates the case law meaning of public benefit. This involves a two step test of demonstrating a benefit to society (as mentioned above) and that those eligible to receive benefits must comprise a large enough group to be considered as the public and without a personal or private relationship being used to limit those who may benefit.

Ultimately courts will interpret charitable trusts rather broadly because charitable trusts are regarded as beneficial to society as a whole and as such can bypass the beneficiary principle and avoid conformity with the certainty of objects requirement. This is because in the case of charitable trusts there need not be a named beneficiary. Attorney General may take an action on behalf of the Crown. Charity is regarded in law as indivisible, irrespective of the actual group or body carrying out the purpose. As such it would not be contrary for money to be permanently dedicated to charitable purposes and will not fail.

Charitable trusts can defeat the rule against perpetuities - may be of unlimited duration.

Can defeat the rule against remoteness of vesting which will allows the court to order a gift over from one charity to another if the original charity should fail and be used for purposes as near as possible to the original purposes under the rules of cy-pres – re Lysaght, re Farakar.

May enjoy substantial fiscal advantages in the form of reduction or exemption from various taxes and charges.