Charitable Trusts

It is permissible to leave a purpose trust if it is for a charitable intent. Charitable organisations are either unincorporated associations or companies limited by guarantee. The law reform commission has recommended that a new form of legal entity be create solely to be used by charities- however it is unlikely that this will come into effect in the near future.

The use of charitable trusts dates back to the Charitable Uses (Ireland) Act 1634. The modern test for a charitable trust was set out by Lord MacNaghten in Commissioners for Special Purposes of Income Tax v Pemsel. The test is two-fold. First, the trust must be for the relief of poverty, the advancement of education, the advancement of religion or another purpose beneficial to the community. This is further expanded upon in the Charities Act 2009 Section 3.

Secondly, the trust must contain an element of public good. It must benefit the whole community or at the very least a significantly substantial part of it.

One of the leading cases of Charitable Trusts is that of Oppenheim v Tobacco Securities. In this case, a fund was created to benefit children of employees and former employees of British American Tobacco, which was a large number; the total number of employees was over 110,000. The House of Lords found that size was not the issue; the group did not count as a section of the public because of the "personal nexus", or common relationship, between them. The nature of charitable trusts means that the definition of "public benefit" varies between Macnaghten's four categories. The number of potential beneficiaries cannot be numerically negligible and the basis upon which the section of the community is chosen cannot depend on a relationship with a particular individual.

Originally, if the purpose trust was mixed and not wholly charitable then it would automatically fail. In Chichester Diocesan Fund v Simpson the testator left £1/4 million “to such charitable or benevolent objects as my executors select’’. This was held not to be valid as the term ‘benevolent’ did not equate to charitable.

However, Section 49 of the Charities Act states that where gift includes both charitable and non-charitable objects its terms will be construed so as to exclude the non-charitable objects.

The law has defined the relief of poverty as a charitable purpose in regards purpose trusts. The relief of poverty is a relative terms and does not mean absolute exclusion. Just like “charities” and “charitable purposes,” “poverty” has never been defined by the courts or the statute. Poverty is a question of degree depending on the circumstances. In Re Coulthurst’s Will Trust, Lord Evershed established that “poverty does not mean destitution; it is a word of wide and somewhat indefinite import; it may not unfairly be paraphrased for present purposes as meaning persons who have to ‘go short’ in the ordinary acceptation of that term, due regard being had to their status in life, and so forth.”

The trust for relief of poverty is also based on the words in the preamble “the relief of aged, impotent, and poor people.” In the case of Re Glyn, it was decided that the words should be construed disjunctively. Thus, a trust for the relief of the aged or impotent will held to be charitable regardless of the existence of poverty. As for poverty, a gift under this head of Macnaghten’s classification must provide the basic necessities of human existence, such as food, shelter, and clothing. Justice Gibson in Joseph Rowntree Memorial Trust Housing Association Ltd v AG stated, “The word ‘relief’ implies that the person in question have a need attributable to their condition. The word ‘relief’ is not synonymous with benefit.”

Viscount Simmonds in IRC v Baddeley stated, “There is no limit to the number and diversity of ways in which a man will seek to benefit his fellow men.” It was held that t was held that a trust which provided outlet for members would be members of the Methodist church, in West Ham; was not charitable since this was not a section of the community but a class within a class. However, once the benefit of a trust are open to the public or an appreciable section, the trust is deemed to be charitable even if relatively few people take advantage of the benefits.

What is key is that the purpose trust must be adequately related to the relief of poverty. For a trust to be accepted under the relief of poverty, it must be intended for persons who are actually poor. Thus in the case Re Sanders’ Will Trust a gift to provide for the "working classes" was held not to be charitable as the expression "working classes" did not indicate poor persons. It has become an established principle of law that where the gift is of a size that the benefit derived from it is such that only a poor person will receive genuine benefit from the gift, this is an acceptable guide. Thus in the case Re Niyazi’s Will Trusts the gift of £15,000 to build a working men’s hostel in Famagusta in Cyprus was held to be charitable as the term "working men’s hostel" connoted poverty as the sum available would only fund a very modest hostel and would only provide the basic facilities and amenities, thus only the relatively poor would occupy it. This was again the position held in Re Lucas where a gift five shillings per week was to be given to the "oldest respectable inhabitants of Gunville".

The public benefit principle has thwarted many purpose trusts for the relief of poverty. Evershed has suggested that the relief of poverty is so altruistic that public benefit can be almost inferred.  However, this is a poor argument. In Dingle v Turner the testator left part of his property on charitable trusts for the relief of the poverty of ‘the poor employees’ of a company. The appellant argued that it was not a charitable gift, and that the gift failed. It was nevertheless held that the intention of the gift was to benefit the poor generally who fell within a certain description, rather than certain individuals. Since they were a ‘section of the public’, the gift was charitable and did not fail. The fiscal advantages obtained by making a gift charitable should not be taken into account in assessing its motives and charitable status.

The 2009 Charities Act has led to some significant changes in this regard. Section 3(7) states that in determining if a gift is of public benefit account shall be taken of any limitation imposed on the class of persons who may benefit and whether the limitation is justified and reasonable. Section 3(8) then states that a limitation on the persons to benefit shall not be justified and reasonable if all the intended beneficiaries or a significant number have a personal connection with the donor of the gift.

The advancement of education is also considered a charitable purpose in regards trusts. Like the relief of poverty, it is subject to some ambiguity as to what education actually is. Section 3 of the 2009 Act allows the advancement of arts, culture, heritage or the sciences to count as a charitable purpose. For artistic pursuits, it is not enough to promote such things generally, as it is too vague. A body for specific artistic purposes may be charitable, as in Royal Choral Society v IRC.

In Re Delius, a widow set up a trust to promote the music of her late husband, who was also a composer. This was held to be both educational and charitable, as on the basis of the evidence the Court found that the composer’s music was worth appreciating. However, in the case of Re Pinion, the testator gave his studio with its contents to trustees to enable it to be used as a museum for the display of his collection of furniture and objects of art and paintings, some of which were by the testator himself.  A legacy in trust to establish a museum to show the testator’s art collection was not charitable because the collection was, in the opinion of experts, “a worthless pile of junk” and unable to benefit the public.

For the young, physical education counts as charitable although trusts to promote sport outside thus exception are generally not upheld. In IRC v McMullen the Football Association had set up a trust to promote football in universities and schools, claiming this was charitable under the 1958 Act in England. It was held however, that the trust was not charitable whether as being for the advancement of education, or in the fourth head of charity. In this case Lord Halsiham described charity as "a balanced and systematic process of instruction, training and practice containing both spiritual, moral, mental and physical elements". Although wide, this excludes things that the courts feel are harmful; in Re Shaw Justice Harman excluded schools for pickpockets or prostitutes.

In Re Dupree’s Deed Trusts a trust for an annual chess tournament for boys under 21 in Portsmouth was held to be charitable as it was found that chess was educational. However, as seen in the Oppenheim case, the public benefit principle is strictly interpreted. In RE McEnery the testator left a trust to enable his nephews and nieces and their descendants to obtain professions. It was held that a bequest for a trust fund enabling the nephews and nieces of the testator and their descendants to obtain a profession was not charitable  

In Re Compton the court considered the charitable status of a trust “for the education of Compton and Powell and Montague children”. It was held that it was not charitable. If the group of beneficiaries is distinguishable from other members of the community by a relationship with a particular individual or entity, whether as a result of family ties, or through contract, or by their employment or by membership of an association, that group will not be considered to constitute the public for charitable purposes. The essential requirement of a public charity is that it dispenses aid to all members of the relevant class of beneficiaries irrespective of all factors other than need.

Trusts for the advancement of religion are permissible, although they must promote the teachings or doctrines of religion. In Keren Kyrneth Le Jisroel Ltd v IRC a trust to purchase land in Palestine to allow for the re-settlement of Jews in the holy land was not seen to be charitable.

The Courts do not tend to draw distinction between one religion and the other. As seen in Re Watson, the size of the following of the religion does not matter. There tends to be a flexible approach taken although section 3 of the Charities Act 2009 states that a gift is not for the advancement of religion if it is made for the benefit of an organisation or cult which has as its principal object the making of a profit or engages in oppressive psychological manipulation of its followers or for the purposes of gaining new followers.

In Re South Place Ethical Society a trust  was set up to promote a society which was based on studying and disseminating ethical principles - main belief was in the excellence of the ideals of beauty, truth and love as expounded by Plato. The court considered the meaning and nature of religious belief, and whether a trust for this purpose could be charitable. Justice Dillon referred to Lord Justice Russell as having taken the view that the court could hold that there are purposes “so beneficial or of such utility” to the community that they ought prima facie to be accepted as charitable, but he observed that this approach was difficult to adopt in view of Lord Simonds’ comments in Williams’ Trustees. Religion requires “faith in a god and worship of that god”.

R v Registrar General ex parte Segerdal and another was a court case heard by the Court of Appeal of England and Wales, which was instrumental in determining whether the Church of Scientology was to be considered a bona fide religion in England and Wales, and by extension what defines a religion in English law. The case, heard in 1969–70, focused on the question of whether a chapel at the Scientologists' UK headquarters should be registered as a meeting place for religious worship under an 1855 law. The Church's initial application was refused and it appealed the case to the courts, arguing that Scientology was a genuine religion and that it used the chapel for religious purposes. In dismissing the appeal, the Court of Appeal found that Scientology's practices "did not reveal any form whatever of worship".[1] Ten years later, the Segerdal ruling was drawn upon to define a religion for the purposes of English common law as requiring "faith in a god and worship of that god". The Segerdal case has continued to have relevance for many years since it was heard in 1969–70. In 1974, the Immigration Appeal Tribunal relied upon Segerdal in ruling that Scientologists could not take advantage of the privileges given in immigration law to ministers of religion.

The Segerdal ruling was heavily relied upon in 1980 to put forward a definition of religion in the case Re South Place Ethical Society. The Society, which proclaimed itself to be concerned with "the study and dissemination of ethical principles and the cultivation of a rational religious sentiment", had applied for charitable status for the purpose of advancement of religion. Justice Dillon drew on the Segerdal case's comments on what constituted a religion and observed: "Religion, as I see it, is concerned with man's relations with God, and ethics are concerned with man's relations with man. The two are not the same, and are not made the same by sincere inquiry into the question: what is God?" Dillon defined religion as requiring "faith in a god and worship of that god", which remains the practical definition in English common law.

Dillon's definition and the Segerdal findings were of key importance in 1999 when the Charity Commission decided to reject the Church of Scientology's application for charitable status. The Commission held that the Church was not established for the advancement of religion because although "it is accepted that Scientology believes in a supreme being," the "core practices of Scientology, being auditing and training, do not constitute worship as they do not display the essential characteristic of reverence or veneration for a supreme being." The Segerdal definition of "a place of religious worship" still applies to registrations of such places. The court found that in order to be registered, the principal use of the place would have to be religious, regardless of how heavily (or little) it was used for that purpose. As Julian Rivers points out, the law "assumes that religious and non-religious uses are easy to disentangle", which may not always be the case.

In England, a strict approach is taken in regards the public benefit limb of the test for trusts advancing religion. In Cocks v Manners there was a gift to a Dominican convent which was in no way involved with the public. Therefore, the court held that there was no public benefit, and so it was not charitable. It did however succeed as a non-charitable purpose trust. In Gilmour v Coats, a trust to apply the income of a fund for all or any of the purposes of a community of Roman Catholic nuns living in seclusion and spending their lives in prayer, contemplation and penance, was not charitable because it could not be shown that it conferred any benefit on the public or on any section of the public. There is no proven or provable benefit to the community if the results of the contemplation are in no way communicated to the public’.

If religious beliefs are genuinely held, the “truth or falsity of religions is not the business of courts.” The law of charity does not now favour one religion to another. It would be unwise to regard charity law as a paradigm of rationality. Lord Simonds said that it had been built up “not logically but empirically”.

Ireland has taken a more lenient approach. In AG v Delaney it was held that gifts for the saying masses would only be of sufficient public benefit if it was specifically stipulated that the masses were to be said in public. However, in O’Hanlon v Logue a trust was set up for saying masses for the repose of the souls of the settlor’s late husband, her children and herself and there was no stipulation that the masses were to be said in public. The Court held that a gift for the saying of masses, whether in public or private is charitable. In Bank of Ireland v Attorney General there was a gift for the repair and improvement of an enclosed order of nuns. Despite having no dealing with the public, it was upheld to be a charitable trust. Under section 3(4) of the 2009 Act it states that it shall be presumed, unless the contrary is proved, that a gift for the advancement of religion is of public benefit.

In Gibson v Representative Church Body there was a bequest to the chaplain of the chapel at the time of the testator’s death and his successors. This was held to be given to the office holder and so was charitable.

Trusts for the benefit of the community are covered under Section 3(11) of the 2009 act and are quite diverse;– the advancement of community welfare including the relief of those in need by reason of youth, age, ill-health or disability, the promotion of health, including the prevention or relief or sickness, disease or human suffering are all included. Trusts to promote sport will generally not qualify, although there are some exceptions to this ruling.

In Re Robinson a trust for the benefit of old people in a certain parish was held to be charitable. In Re Lewis a trust to the benefit of 10 blind boys and 10 blind boys was held to be a charitable trust.

The court or the Commissioners for Charitable Donations and Bequests draw up a scheme to allow the trust property to be applied for other charitable purposes as near as possible to those intended by the donor. Where the original purposes in whole or in part have been fulfilled or have ceased to be charitable in law or cannot be carried out according to the directions given and the spirit of the gift or where more effective use might be made of the property by distributing the trust in another manner.