This is an extract of our The Beneficiary Principle And Non Charitable Purpose Trusts document, which we sell as part of our Trusts and Equity Notes collection written by the top tier of Oxford students.
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The Beneficiary Principle and Non-Charitable Purpose Trusts Rule against private purpose trusts: Every English trust must have a beneficiary to enforce the trustee's obligations. A trust for an abstract purpose, with no beneficiaries, is void. Morice (1804); Facts: Trust fund applied for 'liberal or benevolent purposes'. Decision: Held the testatrix did not mean charity. Held trust failed because: (1) There were no human beneficiaries, so no-one had standing to enforce the T's duties, so the Ts are unaccountable in the administration of the trust fund. (2) Uncertain - testatrix did not say how the fund should be applied. In charitable cases the trust can be as vague as you like, and the court will implement a scheme of distribution. With a private purpose trust there is no ability to render precise vague terms by means of a scheme. Principle: Beneficiary principle requires a valid trust to have human beneficiaries. Trust inoperable here as Ts do not know what to do with money.Re Astor's Settlement Trusts ; Facts: Involved the entire share holding of the Observer Newspaper. All shares given to trustees - trustees required to apply the shares for: 1. maintenance and improvement of good understanding sympathy and co-operation between nations; 2. The preservation of the independence and integrity of newspapers ...5. The protection of newspapers from being absorbed or controlled by combines". Decision: Void because there were no private beneficiaries; just vague purposes.Leahy v. Attorney-General for New South Wales ; Facts: A testamentary gift made by the widow of a wealthy man. Left residuary estate: "[My homestead and furniture] upon trust for such orders of nuns of the Catholic Church or the Christian Brothers as my executors and trustees shall select". Decision: This was a purpose trust in disguise. This was not a charity because not all religious orders are charitable. It was so wide that some orders may be contemplative orders, rather than pursuing extraneous good works. So taking a broad view of construction it was void - could further non-charitable purposes. Cf. now the "contract-holding theory" of gifts to unincorporated associations (see notes on property holding by unincorporated associations).NB. Powers - Powers do not require beneficiaries (Douglas). Should not allow a valid power to be born just because a trust is invalid (IRC v. Broadway).
Objections to private purpose trusts: (i) Enforcement of the T's duty to account - A trustee who is subject to no enforceable duty to account for his or her management of the trust fund is in effect a beneficial owner of it. The duty to account implies a correlative right in a beneficiary to enforce it.Morice (1804); Need to maintain the distinguishing features of a trust. If there is no beneficiary there could be outright transference of ownership. Armitage v. Nurse ; Accountability is part of the 'irreducible core' of being a T. If a T is to be accountable there must be a B with standing to enforce that duty. Re Astor's Settlement Trusts ; If you must have accountability then you must have a B on the other end to make the duty real.
(ii) Beneficial ownership cannot be kept in suspense - The rights of enforcement of a B against his or her T are treated as beneficial property rights enforceable against the trust fund. A purpose trust would involve a fund of which no person was the beneficial owner. This is a problem because there is a policy against ownerless property - allowing people to put property into a black hole. A purpose trust is an extreme ring-fencing of property; ring fenced from settlor's claims, there are no Bs so no one can claim it. Compare the collective beneficial ownership of objects under a discretionary trust and their powers under Saunders v. Vautier (1841). If you are the object of a discretionary trust no one object, has an absolute interest in the trust fund - but collectively all Bs do own the property. That's why they can exercise Saunders rights and take it outside the control of the trustee.
+ McBride: Economic arguments - they have a socially useful function in not being capricious. It is presumed bad to tie up property in this way. (iii) Uncertainty and unworkability - The purposes for which the Ts are required to apply the property may be too uncertain in their definition. The Ts may not be able to execute them in a workable way. Re Astor's Settlement Trusts ; Facts: Ts held capital fund for purpose of 'promoting good will between nations'. Issue: How do you know when the Ts have not done their duty? The settlor does not define discreetly, precisely what the duties of the Ts are. The trust is too uncertain to be workable. Trustees must be able to know in advance whether what they are doing will be ultra vires or intra vires to their powers = Objection goes to the very workability of the trust.-
R v. District Auditor, ex p. West Yorkshire District County Council (1985); Said to involve a non-charitable purpose trust. How were the Ts meant to apply the property for the 400,000 residents? Same workability issues applied to the treatment of it as a non-charitable purpose trust.
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