Published on 29/05/2007

Charitable Trusts

(A) Charitable Purposes

Features of charitable trusts
•   Valid trusts for purposes rather than for people
•   These trusts are by virtue of statute often exempt from taxes etc
•   We ask, is this charitable for the purposes of some particular benefit in the tax system?
•   Is this gift charitable? If so can we change or tweak a bit?
•   If you create a trust inter vivos, you are settlor and you give to trustee. If it fails property goes back to you
•   If you are dead you are called testator. If trust fails, property goes back to executors.
•   A charitable trust can be created while you are alive or dead.
•   If a charitable purpose becomes impossible, the property may (subject to certain rules) be applied to another charitable purpose (“cy-pres”)
•   An equitable jurisdiction can create “cy-pres” scheme for a charitable trust only, not a private trust.
•   Where one of several charitable gifts fails, it can be severed without invalidating the remaining gifts: Charitable Trusts Act 1993 (NSW) s23
•   Charitable trusts may continue in perpetuity. A gift over in default to a charity doesn’t have perpetuity problem.
•   We look at cases where next of kin challenge testator’s charitable gift.

Charitable Purposes
Note: We are looking at the purpose of the trust and not the nature of the trustee institution (or beneficiaries)
•   These days tax statutes require charities to be registered to avoid these tax problems.
•   Not everything that is for a good cause fits the legal definition of a charity.

The Statute of Elizabeth (Charitable Uses Act 1601)  Preamble still referred to
“… for relief of aged, impotent, and poor people, some for maintenance of sick and maimed soldiers and mariners, schools of learning, free schools, and scholars in universities: some for repair of bridges, ports, havens, causeways, churches, seabanks and highways; some for education and preferment of orphans, some for or toward the relief, stock or maintenance of houses of correction; some for marriages of poor maidens; some for supportation, aid, and help of young tradesmen, handicraftsmen, and persons decayed; and other for relief or redemption of prisoners or captives, and for the aid or ease of any poor inhabitants concerning payment of fifteens, setting out of soldiers, and other taxes; …”
•   Four classes of charitable purpose arise.
•   Have to show your purpose is within one of these classes.
1.   Relief of poverty  poor, impotent etc
2.   Trust for advancement of education
3.   Trust for advancement of religion
4.   Trust for other purposes  have to be beneficial to the community within intendment of the statute of Elizabeth, e.g. repair of bridges, causeways etc

Commissioner for Special Purposes of Income Tax v Pemsel (1891)
Lord Macnaghten:
“Charity” in its legal sense comprises four principal divisions: trusts for the relief of poverty; trusts for the advancement of education; trusts for advancement of religion; and trusts for other purposes beneficial to the community not falling under any of the other preceding heads.

Scottish Burial Reform & Cremation Society Ltd v Glasgow Corporation
•   Money left for cremation of bodies rather than burial.
•   This was found to be charitable
•   It was categorised as an activity of public utility
•   Either argue by analogy from the Statute or as in this case make a case for public utility
•   It fit within the burials, churches and maintenance of graves etc always considered charitable in statute. So by analogy, doing it in hygienic way is considered charitable.
•   Wilberforce LJ says can read statute generously
“The purposes in question, to be charitable, must be shown to be for the benefit of the public or the community in a sense or in a manner within the intendment of the preamble to the statute 43 Eliz 1c4. The latter requirement does not mean quite what it says; for it is now accepted that what must be regarded is not the wording of the preamble itself, but the effect of decisions given by the courts as to its scope, decisions which have endeavoured to keep the law as to charities moving according as new social needs arise or old ones become obsolete or satisfied”
•   Upjohn LJ takes opposite view
“The authorities show that the ‘spirit and intendment’ of the preamble to the Statute of Elizabeth have been stretched almost to breaking point. In the 19th and 20th centuries this was often due to a desire on the part of the courts to save the intentions of the settlor or testator from failure …Now that is used so frequently to avoid the common man’s liability to rates or taxes, this generous trend in the law may one day require reconsideration.”

Royal National Agricultural Society v Chester
•   Trust for breeding of racing pigeons
Two approaches from the Scottish Burial Case
(i)   Argue by analogy from Statute of Elizabeth and decided cases
(ii)   Characterise the activity as one of public utility
•   Argument in this case was that breeding was a wonderful thing because it was a useful form of communication.

(B) Public Benefit

Public Benefit
•   Must be for the benefit of a section of the public

“The Public”

Re Compton
•   Although trust was for educational purposes, it was only for children of those belonging to particular families (Compton, Powell and Montague children). Doesn’t meet public test.
Lord Greene MR: “A gift under which the beneficiaries are defined by reference to a purely personal relationship to a named propositus cannot on principle be a valid gift”
•   Public benefit test not applied strictly to poverty cases (Dingle v Turner)
•   Even a charity that has a small class may survive despite fact that class is defined by relationship to a family

Oppenheim v Tobacco Securities Trust Co Ltd
•   Trust for education of children of employees or former employees
Lord Simonds: “The possible beneficiaries must not be numerically negligible, and …the quality which distinguishes them from other members or the community, so that they by themselves form a section of it, must be a quality which does not depend on their relationship to a particular individual.”
•   Still failed, had to have a relationship with the public
•   This was providing scholarship whereas Dingle v Turner was helping poverty.

Re Koettgenn’s Will Trusts
Facts: Testatrix made a gift for the “promotion and furtherance of commercial education”. Those eligible were born of British descent and wanted to educate themselves but didn’t have the money. Gift provided that up to 75% of the fund be given to “preferred beneficiaries” who were to be “employees of John Batt & Co or members of the family of such employees”
•   Public benefit test was passed because the trustees had to give 25% to the public but could have given more.
•   Where does the line get drawn.
•   As soon as you can say that a section of the public cannot benefit from the trust charitable trust fails.
Trust was for the advancement of education but was it for the public?
Held: Determine the validity of trust by looking at primary class of objects. Here primary class is anyone of British descent without means of furthering their education  This is clearly the public, a subsequent expression of preference did not make the trust invalid.

•   Public benefit test is not rigorously applied for the relief of poverty. This is because the salvation of one person is good for the whole community. Hence, even though may have a very small class, may nevertheless survive even though may involve relationship to family.

Dingle v Turner
Facts: Pensions for “poor employees” of a particular Co.
Held: Even though for a small group of beneficiaries, still could be public trust as it was for the relief of poverty.

Downing v FCT - Don’t have to prove that in absolute penury.

Re Income Tax Acts No 1
Facts: Gift to benevolent asylum to which only freemasons and their wives or widows could be admitted.
Issue: Is this a public benevolent asylum within the Victorian Tax enactment?
Held: No. A group may constitute a section of the public if there is no restriction on the admission of some members of the public while others are allowed (i.e. any member of the public may adhere to a certain faith or live in a particular area). This can be distinguished from associations which take the power themselves to admit or exclude members of the public according to some arbitrary test which they set up in their rules or otherwise e.g. trade unions, clubs, literary societies.

IRC v Baddeley
Facts: A conveyance of land on trust for “the promotion of the religious social and physical well-being of persons resident in …West Ham and Leyton [who are or are likely to become] members of the Methodist church”.
•   Viscount Simon  tough on finding charities
•   It was for the promotion of physical and social well being not for religion per se
•   It was also not for the public as such  there were too many restrictions preventing people joining. Had to live in the territory (geographical limitation) and be or likely to become Methodist.

Held (per Viscount Simond): “Somewhat different considerations arise if the form, which the purporting charity takes, is something of general utility which is nevertheless made available not to the whole public but only to a selected body of the public – an important class of the public it may be. For example a bridge which is available for all the public may undoubtedly be a charity and it is indifferent how many people use it. But confine it to a selected number of persons, however numerous and important: it is clearly then not a charity. It is not of general public utility: for it does not serve the public purpose which its nature qualifies it to serve”

•   Viscount Simond distinguished between
“a form of relief extended to the whole community yet by its very nature is advantageous only to a few” [e.g. a sea wall or a bridge]
and “a form of relief accorded to a selected few out of a larger number equally willing and able to take advantage of it”
•   No public benefit if beneficiaries confined to persons of a particular area selected from it by reference to a particular creed.

Davies v Perpetual Trustee Co
Facts: Property left to “the Presbyterians the descendants of those settled in the colony hailing from or born in the North of Ireland to be held in trust for the purpose of establishing a college for the education and tuition of their youth in the standards of Westminster Divines as taught in the scriptures.”

Held: The objects of the trust are clearly not the community. The testator has been at pains to impose particular and capricious qualifications on the persons who are to benefit from this education. These persons cannot be a “section of the community” …it is clear that the nexus between the beneficiaries is simply their relationship to several people living at the death of the testator.
- I.e. the qualifications needed to benefit from the gift are irrelevant to the educational object of the trust and are purely personal

Thompson v FCT
Facts: For schools for the brethren and the deceased brethren of the Masonic Order in NSW.

Held: Even though wide reach, still had to be a member of the club, and so couldn’t be a charitable trust. Here association takes power itself to exclude or admit members of the public.

Continued on page 2

continued

“Benefit”
•   Public benefit is presumed in the case of charities for relief of poverty, advancement of education and religion, but must be affirmatively proved in other cases.
•   Public benefit means that it has to benefit human beings. One that benefits other species or the environment would fail the public benefit test on a narrow interpretation.
•   There are still charities for animals and the environment, as they benefit not only the animals, but also promotes kindness and humanity among human beings, and so it is good for our souls.
•   However, setting aside a wilderness park not allowing people to step into will fail the test, as there is no benefit to the public at large. Would have to at least allow limited access (can go in for restricted access, under close supervision).

National Anti- Vivisection Society v IRC
Facts: Trust established to fund the cause of opposing vivisection (experiments on animals).
Argued that it relieves animals from cruelty but also benefits human integrity because it encourages us to be kind. It edifies people about horrors of vivisection. May have an educational foundation and therefore have a benefit to human beings as well as animals.

Held: Must be section of the public who has benefited. If court believes that achievement of the intention would be to public detriment, the trust will not be charitable. People do benefit from experiments, hence this trust would be to the detriment of society.

Who is the court to decide what is more for the public benefit? If it is about changing the law, you cannot create a trust, because the court can’t enforce it.

(C) Political Trusts

The Rationale
•   These are not charitable purposes, and so strike a problem.
•   The AG cannot enforce a political trust. The AG enforces charitable trusts, but they are also a member of the government. They will have a major conflict if the AG is seen to support a cause which pursues some change in the law? This means that it will not matter if it is a federal law; the AG cannot get involved in anything that will change in state or federal law.
•   The court is constitutionally incompetent to assess whether a change in the law will be for the public benefit.

•   National Anti-Vivisection – Wanted to ban the use of animals in scientific research. This would have required a change in the law. Court felt they weren’t in a position to decide which is better for the public interest: benefit of the medical research v public interest in not harming animals. They felt they weren’t constitutionally competent to decide the issue. This meant that money would have to be donated directly and absolutely.

Bowman v Secular Society Ltd
“A trust for the attainment of political objects has always been held invalid, not because it is illegal…but because the court has no means of judging whether a proposed change in the law will or will not be for the public benefit”

Re Bushell dec’d
A fund to the “Socialist Medical Association, the Haldane Society, the Labour Research Department and the Marx memorial Library…” to use “for the advancement and propagation of the teaching of socialist medicine”
Held: This was political object and was not considered a valid charitable trust

(D) Poverty

Words in the preamble “aged, impotent and poor” should be read disjunctively. Need only be impotent or aged or poor, not all three.

Le Cras v Perpetual Trustee Co Ltd
Facts: Was a trust funding the wealthy private hospital (St Vincent’s), providing health care for wealthy, still charitable?
Held: Yes, since the trust helped the sick it did not have to help the poor as well. Hospital, although accepting fees, is still a non-profit organisation.

Downing v FCT
Facts: Trust for the “amelioration of the condition of the dependants of any member or ex-member of Her Majesty’s naval military or air forces of the Commonwealth”
Held: Valid. The term poverty referred to persons who, although they may not be in abject poverty, are subject to some degree of financial necessity. No absolute destitution threshold that has to be met.

(E) Education

Re Shaw Dec’d
Facts: George Bernard Shaw left money on trust in his will for investigation of a new 40 letter alphabet, arguing that it would facilitate the teaching of language and education of the young.

Held: Not a valid charitable trust. The object of merely increasing knowledge is not charitable unless combined with teaching or education. The research and propaganda enjoined by the testator tend to the increase of public knowledge only in the saving of time and money by the use of the proposed alphabet. This trust was about Shaw’s own idiosyncratic ideas, and hence was not truly for education purposes.

Re Hopkins Will Trusts
Facts: Trust for benefit of finding the Bacon-Shakespeare manuscripts

Held (Per Wilberforce J): The limit “combined with teaching or education” imposed on a gift for research in Re Shaw should be read in a wide sense. ‘Education’ extends beyond teaching and the requirement is, that in order to be charitable, research must either be of educational value to the researcher or must be so directed as to lead to something which will pass into the store of educational material or so as to improve the sum of communicable knowledge in any area which the education may cover.
Shakespeare work is important, therefore it is a matter for the advancement of knowledge for the purposes of disseminating it. Must be a public benefit as well, which involves room for dissemination of the knowledge accumulated.
Test was amply wide to include this gift, hence the trust was charitable.
- This test for education is likely to be followed.

Re Pinion deceased [1965] Ch 85
Wilberforce J held charitable a gift of paintings, furniture etc to be used to endow museums. There was enough in the collection to contribute to the formation of artistic taste. He allowed the deceased to have considerable dominion over the living, burdening them with maintenance of the museum.
Ct of Appeal reversed him, pointing to the evidence that the testator’s paintings were ‘atrociously bad’ and other paintings were worthless. Hence it could not be used for the advancement of knowledge.

(F) Religion

What is religion?
•   Religion is seen to be a belief in a supernatural being, thing or principle and acceptance of cannons of conduct to effectuate that belief: Mason ACJ and Brennan J (Church of the New Faith v Commissioner of Payroll Tax).

Church of New Faith: held that it was a religion, and so could benefit from being a charitable trust.

•   Wilson & Deane in Church of New Faith:
Court looks for:
o   Belief in supernatural (reality extends beyond that capable of perception by senses).
o   Ideas re place of humans in nature universe
o   Set of adherents, required to conform to codes of conduct and practices
o   Adherents for an identifiable group who consider themselves a religion.
•   No assessment of utility, rationality or worth of the organisation in determining question of religion.

Gilmour v Coats
Must be public benefit to render a religious purpose a charitable trust
Facts: Gift to a contemplative order of nuns who did no external works
Held: that there was no public benefit, as they didn’t spread the word of the God, and was only beneficial for the members of order. Even though it was held to be religion, it did not pass the public benefit test.
Public benefit cannot include anything so indirect, remote, imponderable…as the benefit that may be derived by others from the example of pious lives

•   If the purpose of the gift is political in nature, it will not be a valid public trust even though it may be given to a church/religion.

Roman Catholic Archbishop of Melbourne v Lawlor
Must be for solely a religious purpose
Facts: Gift to found a Catholic newspaper
Held: Invalid. In order to be charitable the purpose must itself be religious. It is insufficient that a secular activity is inspired by a religious motive or the purpose has a connection with religion.

Continued on page 3

continued

(G) Fourth Class

Trusts for other purposes beneficial to the community within the spirit and intendment of the Statute of Elizabeth

William’s Trustees v IRC
Facts: Fund given to establish in London a place for the promotion of the “moral, social, spiritual and educational welfare” of Welsh people.

Held: No charitable purpose. Trusts for mere recreation, hospitality and entertainment are not enforceable.
To be valid, a charitable trust must be both:
(a)   for the benefit of the community and
(b)   beneficial in a way which the law regards as charitable

Downing v FCT
Walsh J: “I do not doubt that there may be gifts for the benfit of a class of ex-serviemen which are not good charitable gifts. For example the object of a gift may be merely of a social or of a sporting character or of some other character such that the purpose could not be classed as one which the law would recognise as charitable. But… valid charitable trusts may be created for purposes relating to the welfare and to the assistance of ex-servicemen or of their dependants…if the purposes can reasonably be considered to advance the safety and security of the country…A trust may be considered to tend towards that result by means of providing aid comfort and encouragement to the armed forces or a section of them, notwithstanding that those who will directly benefit from the trust are those who have ceased to serve or their dependants.”

Incorporated Council of Law Reporting v FCT
Facts: Trust set up for the law reporting of QLD SC cases; council was a non-profit organisation.

Held (Windeyer J): “In any country governed by the common law, the publication of the reports of decisions of the superior courts is essential for the continuance of the rule of law. The continuity of the common law and its characteristic capacity for development and change depend upon those who are concerned with its administration having a means of knowing the current course of precedents…Their publication has always been for the public benefit; but in time past it was not a charitable undertaking because it was done for private profit. The purpose that the council serves is a purpose of public utility, the advancement of legal learning by publishing reports. This combination of objects and purposes suffices to make it a charitable institution.”

(H) Schemes

•   What if:
-   The terms of the charitable gift are not clear?
-   The recipient of a gift in a will doesn’t exist at the date of T’s death?
-   A charitable institution ceases to exist after receiving a gift?
-   A charitable institution refuses to accept a gift on the present terms but will if they are removed?

General vs Particular Charitable Intention
-   Particular: if T’s intention is construed to be to benefit a particular institution or purpose only, then the gift will fail if the institution doesn’t exist or refuses to accept the gift. This means the gift will result back to wherever it has come from.
-   General: If T’s intention exhibits a general charitable intention – the gift may be applied to other comparable charitable purposes.

•   Charitable Trusts Act 1993 NSW, s10: A general intention is presumed unless “there is evidence to the contrary in the instrument establishing the charitable trust.”

General Scheme vs cy-pres scheme

General Scheme

•   The problem: intention is vague but clearly charitable. The testator has a genral charitable intention, but has failed to specify a particular purpose, or, the machinery for carrying out the purpose fails.
•   The issue is one of interpretation: what did the T really mean for this gift?

Cy-Pres Scheme

•   The issue is the court consciously substitutes another charitable purpose BUT

•   There must be a general charitable intention AND
-   Initial impossibility or impracticality
-   Supervening impossibility or impracticality
-   Surplus funds after effecting the intended charitable purpose.

Re Lysaght Deed
Facts: Gift to the Royal College of Surgeons to provide scholarships for British born students “not of Jewish or Roman Catholic faith.” The college refuses to accept the gift on these discriminating terms.
Held: The gift was varied because: “The impracticability of giving effect to some inessential part of the testatrix’s intention cannot…be allowed to defeat her paramount charitable intention.”
-   Court found that the testator wasn’t really a “bigot”. They also held that there was a supervening impossibility or impracticality. The testator really wanted the College to decide the scholarship.
-   This meant the court could institute a cy pres scheme by removing the restrictive provision to ensure that the College could still get the money.

Phillips v Roberts
Facts: Testatrix leaves property to “improve biblical knowledge” by establishing a new church.
Held: Giving effect to the intentions of the testator was clearly impractical, but the Court held that the gift was generally charitable (looking at the will primarily). Problem as to how to apply the principle. The intentions of the testator were clearly to establish a new church as she was very unhappy with the current faiths. There were two schemes suggested. Trustees suggested the money should benefit the Institute of Archaeology. The AG wanted the fund to be divided among seminaries. Hutley J was prepared to assess evidence from testatrix’s associates to infer what her reactions would have been to the way her property was disseminated.
Evidence from friend of testatrix disclosed that she would not have wanted money to go to seminaries. Money can go to the Institute of Archaeology.

(I) Mixed Purposes

Three types of case:
1.   Charitable purposes mixed with other indefinite, non-charitable purposes and the trustees are given no discretion to choose among them: eg Morice case
2.   Trustees have discretion to apportion between charitable purposes and sufficiently certain non-charitable objects.
3.   Clear overriding intention to create a trust for charitable purposes, however some of the purposes stated are not strictly charitable, or the trustees could use their discretion to choose non-charitable purposes (i.e. alternative ways of applying the property which are not charitable).

Under the general law, 1 and 3 would fail because
•   In 1, the trustees would be obliged to distribute to non-charitable purposes
•   In 3, the trustees would be at liberty to distribute to non-charitable purposes

However, 2 would be valid, and the trustees would be required to apportion the fund between the valid charitable purposes and the certain objects.

Under the Charitable Trusts Act 1993 NSW s23, category 3 would be rendered valid by constructing the trust to exclude any non-charitable purpose. (Note: The statute will not be used to render valid a vague and uncertain gift which is not clearly charitable.)
Effect of s23 can be to save the charitable purpose and treat it as the sole purpose (i.e. sever the non-charitable purpose)

Leahy v AG NSW
Facts: A gift ‘upon trust for such order of nuns of the Catholic Church or the Christian Brothers as my executors and trustees shall select. This allowed trustees to select a purely contemplative order (of the kind held non-charitable in Gilmour v Coates) or comply with the trust in a charitable way and select an ‘active’ order of nuns.

Held: The trust, involving a ‘composite expression’ can be saved by construing it as applying purely for a charitable purpose (i.e. property goes to non-contemplative order) and not the non-charitable purpose, under predecessor to s23.