Trust Essay Questions

Courts now adopt the attitude that a trust for private purposes will be invalid unless the purposes are sufficiently for the benefit of identifiable individuals. Discuss this statement, outline any exceptions to this approach, and evaluate the current state of the law in this area. Pursuant to the leading case, in this area: Morice v Bishop, a trust with no ascertainable beneficiaries will be held to be void on account of the beneficiary principle. According to this principle, for there to be a valid trust there must be, amongst other things, a beneficiary in whose favour the court can enforce the trust. Recently, the case of Re Denley encapsulates a new pragmatism within the courts as far as this area of law is concerned. Departing from the narrow conceptualisation of the beneficiary principle in Morice, Denley as affirmed in Re Lapinski, holds that a trust will not be void if the court can ascertain that the trust will directly or indirectly benefit some individuals. Thus, in answering the question at hand I will begin with the importance of the beneficiary principle and its centrality to the law in this area, I will then consider academic criticisms of the principle and academic proposals for reform. Following this I will then move on to the response of the law to these criticisms through the Re Denley criterion and then I will also consider the various exceptions to the general rule via a discussion of the concessions to human weaknesses, the imposition of Quistclose trusts and lastly, the two approaches to unincorporated associations. To proceed, I begin with the centrality of the principle in Morice v Bishop to the operation of trusts law in England and Wales. As Hudson notes, this principle is underpinned by the idea that there can be no duty without a corresponding right. The court cannot be expected to enforce a trust if there are no beneficiaries. Furthermore, the principle is there to ensure trustees do not act with impunity in the absence of the controlling mechanism of a beneficiary. For these reasons, as Davies and Virgo highlight , the principle is so deeply entrenched in English law that the only manner that some see it being overruled is through legislation. This is not to say that the rule is without its criticisms. As Davies and Virgo note, there appears to be no reason why the court should hold a trust to be invalid for lack of beneficiaries if the purpose is clear and the trustees are willing to act. Building upon this, Hayton argues that the English courts should follow the lead of other jurisdictions, namely the Isle of Man which have recognised purpose trusts as giving rise to purpose trusts. At the very least, he argues that English courts should, whenever English assets are tied up in purpose trusts in foreign jurisdictions recognise their validity. Powlowski and Summers on the other hand take a different approach. They argue that purpose trusts should be universally valid with the exception of cases where the trust is offensive to public policy. However, it must be submitted, as Mathews does, that these recommendations miss out on a valid point central to the law on trusts. A trust is a relationship between a trustee and a beneficiary vis a vis some property, besides there being a need for a beneficiary, there is a beneficial interest in play here and the recognition of purpose trusts simply undermines the meaning of the law on trusts. In this schism between the need for certainty and the need for flexibility is where the current law in Re Denley stands. In a demarcation from the strictness of the Morice v Bishop rule, Goff J has honed in on the need for an enforcer in lieu of the term beneficiary. As he argued, Morice v Bishop failed for the specific reason that there would be no one in whose favour the court could enforce the trust. However, where the court could identify individuals whom the trust would benefit whether directly or indirectly, the need for an enforcer would be satisfied on the basis that these individuals, although 1|Page Iman Courts now adopt the attitude that a trust for private purposes will be invalid unless the purposes are sufficiently for the benefit of identifiable individuals. Discuss this statement, outline any exceptions to this approach, and evaluate the current state of the law in this area. not beneficiaries, would be in a position where there would have a factual interest on the manner in which the trust property is dealt with and that for that reason there would be in a position of locus standi. Oliver J affirmed this in Re Lapinski. Hence, when the two cases are read in conjunction it is apparent that the courts, where this dilution of the Morice v Bishop rule is concerned, will hold that a trust is valid if there are some sort of identifiable beneficiaries. It is only in those cases where the purpose of the trust is abstract and the benefit so indirect as intangible that the trust will be held to be void. Having said that, this development and focus on the enforcer ignores a more obvious point: the importance of a beneficiary not only in terms of benefitting from a said right in terms of enforcement but from benefitting from the right to terminate the trust a la Saunders v Vautier. Pursuant to that case beneficiaries can if they are of sound mind, sui juris and in agreement terminate a trust. However, by taking on the direct, indirect approach as in Denley and Lapinski such a move could never happen because one could not at any one time be able to decide who all the beneficiaries are with any conceptual certainty as in Re Denley the enforces could be present, future and past employees. Therefore, in demarcating from Morice v Bishop the Denley exception creates some further issues. As may be apparent by now, equity is a system of law where most general rules have several exceptions. The Re Denley direct or indirect benefit test is just one. In those cases where there is no one person that may be identified as a potential beneficiary other concessions include those to human weakness and sentiment as indentified by Underhill. For this reason the use of trust money for the erection tombs (mussett v bingle), care of animals (pettingall v pettingall and Re Dean) as well as saying of masses (Bourne v Keen and Re Khoo Cheng) are allowed to surpass the beneficiary principle requirement. However, these concessions are subject to a general rule against capriciousness. Therefore, where the erection of a tomb can be said to be capricious, such as requiring some useful monument to myself (Re Endacott) or artistic towers for me and my family (M’Caig), then the said bequest will be held to be void. A third exception to the rule, is the Quistclose type trust. Equity acts in personam, that is that its jurisdiction attaches to the conscience of a defendant (Westdeutche). Therefore in Quistclose trusts as derived from the case of Quistclose as affirmed in EVTR, where a legal person receives money for a certain purpose that money will be held as on trust despite the fact that there are no beneficiaries identifiable in order to restrain unconscionable conduct. However, this does not extend to money lent and desposited to an overdrawn account (Box) simply because the money can no longer be ascertained. Although, the case of Farepak may be held to cast a shadow on the validity of this exception, because it was decided per incuriam to the case of Re Kayford, which it mirrored and which highlighted the validity of the Quistclose idea, Farepak must be treated with caution and the Quistclose trust accepted as an exception to the general rule. Fourthly, the rule against purpose trusts may be circumvented as far as unincorporated associations are concerned in two ways which i will discuss. As per the case of Conservative unionist, an 2|Page Iman Courts now adopt the attitude that a trust for private purposes will be invalid unless the purposes are sufficiently for the benefit of identifiable individuals. Discuss this statement, outline any exceptions to this approach, and evaluate the current state of the law in this area. unincorporated association is the coming together of two or more people for a common purpose with mutual obligations as governed by an institutional contractual framework setting out the rules of the organisation and those in charge. As is common knowledge an unincorporated incorporation is not a legal entity, for this reason they would not be able to enforce or have a trust enforce d in their favour, which clearly offends the beneficiary principle. However, as per the case of Neville Estates unincorporated associations can hold trust property in three main ways: through a people trust (Re Denley as extended to unincorporated associations by Re Lapinski), through a contractual approach: Re Recher and lastly for the purpose of the unassociated incorporation at which point it would fail due to Morice v Bishop. Having discussed Re Denley above I will give attention to the contractual approach. As per the case of Re Recher, an unincorporated association, although not a legal entity, can hold property for its members due to the rules of the association. Circumventing the trust restraints by turning to contract this exception highlights that going down the trust route in giving property away is not always the route to be followed. Lastly, it should be noted that these exceptions are subject to perpetuity rules under statute (Perpetuities and Accumulation Acts 1964 and 2009) and common law, in order to comply with the rule against remoteness of vesting. Essentially, the rule is there to ensure that assets stay in circulation (as stated by Hudson), to keep society productive (as stated by Simes) and lastly, as Deech notes due to a recognition that the dead cannot respond to changes in circumstances the same way the living can - a point recognised by the beneficiary principle. To conclude, it is apparent from these exceptions to the beneficiary principle that the law has since morice v bishop developed and been diluted. Following Denley and Lapinski the law in this area is considerably wider and yes without a doubt private purpose trusts will be valid if they can be held to benefit individuals directly and indirectly. And yes, they will only fail for completely abstract purposes. However, this isn’t the only exception. The recognition of testamentary trusts of an imperfect obligation in the concession cases illustrates this, as does the Quistclose trust and the contractual approach to unincorporated association in Re Reecher. 3|Page Iman

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McDonald & Street: Equity & Trusts Law Concentrate 4e

Chapter 6: Outline answers to essay questions

Critically discuss the impact of the Charities Act 2006 on the public benefit requirement.

Note: the laws relating to charitable trusts and their administration have recently been consolidated by the Charities Act 2011. All statutory references will be to this Act, unless otherwise mentioned.

Introduction : to answer this question, contrast the previous legal position with the changes contained in the Charities Act 2006. One of the aims of the Charities Act 2006 was to make charities more accountable for the benefits they receive. This aim is clearly seen in the reforms made to the public benefit requirement.

Previous legal position : originally, charities for the relief of poverty and the advancement of education and religion benefited from a presumption of public benefit.

Discuss how this presumption assisted some 'borderline' trusts to be deemed charitable, e.g. trusts for poor relations (eg Re Segelman) and trusts for religions with an extremely small following (see, for example, Re Watson [1973] 1 WLR 1472).

Discuss the impact of the Charities Act 2006 : s 4(2)Charities Act 2011 removes the presumption of public benefit – all charities must now be able to provide evidence that they are for the public benefit. It is arguable that the removal of the presumption itself will have little practical effect on how charitable status is to be assessed.

‘Poor relations’: while the Charity Commission suggested that 'poor relations' trusts will be subject to closer scrutiny to ensure they are for the public benefit, the decision in Attorney-General v Charity Commission for England and Wales and others [2012] suggests that public benefit will still be generously assessed for charities which seek to relieve poverty.

Public schools: discuss whether the Act will affect the charitable status of public schools. Early indications that the impact of the Act may be limited would appear to have been confirmed by the decision of Independent Schools Council and others v Charity Commission for England and Wales [2011]. Discuss how the Upper Tribunal confirmed that the Charity Commission Guidance on the public benefit requirement took too restrictive an approach to how public benefit was to be assessed in relation to fee-charging charities, such as public schools and hospitals. This decision also suggested that the presumption removed by s 4(2) never really had the force of a ‘true’ legal presumption and operated more as a simple ‘predisposition’ for judges considering the public benefit of potentially charitable trusts (see paras. 54-71 and particularly paras. 67-71 of the decision for further detail).

Consider whether the reforms introduced by the Charities Act 2006 have resolved the problems of 'public benefit' – are there issues which should have been addressed, e.g. should the Act have included a statutory definition of 'public benefit'? This area is an interesting example of how the political agenda which seemed to motivate the reforms to public benefit was not sufficiently supported by the terms of the Act itself (for example, through the retention of the previous common law by s 4(3)Charities Act 2011). Attempts by the Charity Commission to address the spirit of these reforms, rather than their letter, have been hotly contested.

An enhanced regulatory role for the Charity Commission : the Charities Act 2006 charges the Charity Commission with ensuring the accountability of charities and with providing guidance to charities on how they may comply with the public benefit requirement (see, now, ss 14-17 Charities Act 2011). Arguably, it is the Charity Commission’s attempts to embrace this enhanced role that has led to recent litigation and debate on this area. Researching the Charity Commission’s role and operation will add further depth to your essay by demonstrating an understanding of how charities are regulated.

Conclusion : drawing together your arguments, conclude on the extent to which the Charities Act 2006 has altered the public benefit requirement.

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