Charitable Trusts and Non-Charitable Purpose Trusts — SQE1 FLK2 Trusts Law

A woman wants to fund free sports coaching for children in the deprived part of the city where she grew up. Any child in the area may take part. The deed permits the fund to be used for nothing else. She has asked two friends to be trustees, she has not applied to the Charity Commission, and somebody has told her that without registration the trust cannot be a charity. Is that right? No. Registration records charitable status. It does not create it.

Her trust is a charity from the moment it satisfies three tests, and the register simply writes that down. This episode is about those tests, about what happens to a purpose trust that fails them, and the doctrine that rescues charitable money when its purpose dies. Keep our coach in mind.

The route. First the three-part test for charitable status. Then the recognised descriptions of charity, and the public benefit requirement that does most of the work. Then the other half of the topic: purpose trusts that are not charitable, why they usually fail, and the handful that survive. Then cy-près, and finally the Charity Commission.

Three questions, and a trust must answer yes to all three. Is it for exclusively charitable purposes? Does the purpose fall within one of the descriptions listed in the statute? Is it for the public benefit? Those come from sections 2, 3 and 4 of the Charities Act 2011. They are cumulative. Fail one and the trust is not charitable, however good it looks.

Our coach clears the first. Her deed permits the fund to be used for nothing else. That sounds like a formality. It is the requirement most gifts die on.

Because exclusively means exclusively. Mix a non-charitable purpose in and the whole trust fails, unless the non-charitable element is merely ancillary or incidental. A trust for the education of children in a town, with a power to spend a little each year on a dinner for the trustees, stays charitable. The dinner serves the purpose. It is not a rival to it.

Now the classic failure. In Chichester Diocesan Fund v Simpson, 1944, a will left residue for charitable or benevolent objects, chosen by the trustees. Benevolent is wider than charitable. The word or meant the trustees could lawfully spend the money on something benevolent that was not charity at all.

So the gift was not exclusively charitable, and it failed. The residue went on intestacy. Two words, an entire estate. But do not reduce that to a rule about the word or. The question is whether the words confine the trustees to charity. Philanthropic and benevolent fails too. It is width that kills a gift, not the conjunction.

Second question. Does the purpose fall within a recognised description? This is where Pemsel comes in, 1891. Lord Macnaghten sorted charity into four heads: the relief of poverty, the advancement of education, the advancement of religion, and other purposes beneficial to the community.

Those four were a classification, not a closed list, and the Charities Act 2011 has now made the list explicit. The list is in s.3(1): thirteen descriptions. Health. Citizenship and community development. The arts, culture, heritage and science. Amateur sport. Human rights. Animal welfare. They all still sit inside Macnaghten's four heads, but you cite the statute now, not the classification.

Which answers a common trap. If an option tells you charity law recognises only four heads, it is a century out of date. Our coach's free coaching advances amateur sport and relieves those in need. One purpose, two descriptions.

A word on poverty, because candidates set the bar too high. Poverty does not mean destitution. A fund for people who cannot meet the commitments it is reasonable to expect them to meet is a poverty trust. That holds even where those people are in work and have somewhere to live. Going short, judged by the standards of your situation in life, is enough.

Education runs wider than schooling. Museums, research, scholarships. But whether something is genuinely educational is judged by the court on the evidence, not by the words of the gift. One testator left his worthless archive to a college, on trust for the education of the public, with a fund to display it. It could educate nobody. Not educational, and so not charitable.

Religion is broader than most candidates expect. Under s.3(2)(a), religion includes a religion which involves belief in more than one god, and a religion which does not involve belief in a god at all. Do not go looking for a single deity.

What is required is belief in a god, a supreme being, or a spiritual or non-secular principle. A society promoting rational and ethical living, which rejects the supernatural and holds no belief in any god, advances no religion. Its lectures may be educational. Religion they are not.

Third question, and the one that decides most problems. Public benefit. It has two limbs: the purpose must actually be beneficial, and the benefit must be available to the public or to a sufficient section of the public. Both limbs, every time.

And nothing is presumed. Section 4(2) of the 2011 Act puts it beyond argument. Since 2006 no category of charity carries a presumption of public benefit, not even religion. It has to be established on the evidence.

Which is what Gilmour v Coats decided, in 1949. A large legacy was left to a community of nuns living in strict enclosure. They admitted no visitors, taught nobody, published nothing, and did no work outside the house. Their days were prayer.

The House of Lords held the gift was not charitable. Advancement of religion is a charitable purpose, certainly. But the benefit of prayer behind a closed door could not be proved, and edification by the example of a life nobody sees was too vague to count. No demonstrable public benefit, no charity.

Do not over-read that case. Open the same community's daily services to anyone who cares to walk in, let its members work in the town, and the answer flips. It was never about the walls.

Fee-charging is where this is fought now. An independent school can be a charity, but it cannot wholly, or almost wholly, exclude the people who cannot pay the fees. Trustees have a discretion about how they benefit the poor. What they cannot do is offer a token: one scholarship a year is not enough.

The public limb has one hard edge you must know: personal nexus. Define your class by its relationship to you, and it is not a section of the public, however many people it catches.

Take a fund to pay school and university fees for the children and grandchildren of the settlor's two brothers. Thirty people qualify now and more will be born. It is education, it is generous, and it is not charitable. The size of the class is not the point. The relationship is.

One exception. Poverty. In Dingle v Turner, 1972, a fund providing pensions for the poor employees of a particular company was held charitable. Poor relations, poor employees, a defined poor class with a personal connection to the settlor. All capable of being charitable.

State that exception carefully, because the examiners will test how you state it. Poverty is an exception to the personal nexus rule. It is not an exemption from public benefit. For every category, including poverty, you still analyse whether public benefit is met.

One more disqualifier. A purpose that is political is not charitable. An organisation whose single object is to change the law, to prohibit animals in circuses, say, is not a charity however worthy the cause. The reason is constitutional: the court cannot decide whether the change would benefit the public without usurping Parliament. Note the line, though. A charity may campaign on matters ancillary to its purposes. Campaigning as the purpose is what fails.

Now the other half of the topic, and it turns on one idea. A trust needs somebody who can enforce it. There must be somebody in whose favour the court can decree performance. That is the beneficiary principle, and it is why non-charitable purpose trusts fail. A purpose cannot sue.

Re Endacott, 1960. A testator left his residue to a parish council for the purpose of providing some useful memorial to himself. Void. There was no human beneficiary to enforce it, and it fell within none of the recognised exceptions. The Court of Appeal added that those exceptions should not be extended.

Which tells you there are exceptions. A small, tolerated, frankly anomalous group. Trusts to maintain a particular grave or monument. Trusts for the care of specific animals. Trusts for the saying of masses. Each valid only if confined to the perpetuity period.

So try this. A will makes three gifts, each expressed to run for twenty-one years. £10,000 to maintain the family grave. £5,000 for the care and feeding of the testator's elderly horse. £8,000 to publish and promote his own proposals for reforming the calendar. Which of the three can the trustees carry out?

The grave and the horse. Both fall within a recognised exception and both are inside the period. The calendar gift falls within none: it benefits no ascertainable person, and a trust to advance the settlor's own theories is not charitable either. That £8,000 falls into residue.

Notice what the two valid gifts actually are. Trusts of imperfect obligation. The trustees cannot be compelled to perform them, and here they are willing, so the residuary beneficiary cannot stop them. Had the will said for ever instead of twenty-one years, the grave trust would have been void for perpetuity, exception or no exception.

Then a case that looks like another exception and is not. Re Denley's Trust Deed, 1969. Land was held on trust to be maintained as a sports ground for the employees of a company and their families. Expressed as a purpose, and yet upheld.

Not as a purpose trust. The purpose was merely the means by which ascertainable individuals received a direct and tangible benefit, and those individuals had standing to make the trustees account. It is a trust for persons wearing a purpose's clothing.

Ask that question of every purpose trust you meet in a problem. Who actually benefits, and can they enforce it? If the answer is a defined group of real people, you may have a Denley trust rather than a void one.

Charity gets one privilege no private trust enjoys. If the purpose fails, the money does not have to come home. It can be applied cy-près, as near as possible: the court or the Commission redirects the property to a purpose as close as it can get to the original. Section 62 of the 2011 Act sets out when that arises.

But there is a gate, and which gate you go through depends entirely on when the failure happened.

Initial failure is where the gift never took effect, because the charity had already gone by the time the testator died. There, cy-près is available only if the will discloses a general charitable intention: an intention to benefit charity of a particular kind, rather than one institution and no other.

So work this one out. A testator leaves £40,000 to a named hospice for its general purposes. The hospice was operating normally when he died and the legacy was paid over to it, though not yet spent. Eighteen months later it closed for good. There is no evidence he had any wider charitable intention. Does the money go back to his estate?

No. It is applied cy-près. This is a subsequent failure, not an initial one. The gift had already vested in the charity. The money was therefore already dedicated to charity, and no general charitable intention need be shown. General intent matters only where the gift fails before it takes effect.

Last, the regulator. The Charity Commission maintains the register of charities for England and Wales. A charity must register if its gross income exceeds £5,000 a year, unless it is exempt or excepted. Below that, no duty to register arises.

Back to our coach, then. Her fund is small, she has not registered, and she was right not to worry. Registration records charitable status; it does not confer it. Her trust is a charity because it passes the three tests, and it would be one if the register did not exist.

The Commission's teeth are worth knowing. It can institute a statutory inquiry under section 46. Once it has, section 76 gives it temporary powers by order, where it is satisfied there is misconduct or mismanagement, or that the charity's property needs protecting. It can suspend trustees, order that property is not parted with, and appoint an interim manager.

And one modern point that catches people out. Since the Charities Act 2022, most disposals of charity land need no consent from anyone. Where the buyer is not a connected person, section 119 substitutes a self-help procedure. The trustees must take and consider a written report from a designated adviser, advertise as advised, and be satisfied the terms are the best obtainable.

A word on how this is examined. SQE1 will not ask you to recite a case name or a section number. You get a scenario, five answers, and one instruction: pick the best. The names here are memory pegs, nothing more. What you are marked on is whether you can run the three tests over a set of facts and say what happens to the money.

If you keep only three. Chichester Diocesan Fund v Simpson, because exclusively charitable is the requirement most gifts fail. Gilmour v Coats, because public benefit has to be shown and never assumed. And Re Denley's Trust Deed, because a trust expressed as a purpose can still be a trust for people.

Five traps. One: a good purpose is not a charitable purpose. A gift for a named individual, or for a small group of the settlor's friends, is not charitable however benevolent it looks. Public benefit is a legal threshold, not a moral one.

Two: poverty is an exception to the personal nexus rule and to nothing else. Three: registration does not create charitable status, and the absence of registration does not disprove it. Four: read Gilmour v Coats narrowly. It does not decide that every religious community fails, only that this one produced no benefit anyone could share.

Five, and the one candidates lose marks on most: general charitable intention is only ever relevant to an initial failure. If the gift vested in a charity that later collapsed, stop looking for intention and apply the money cy-près. Then a habit for the exam. Name the failure, initial or subsequent, before you reach for any rule at all.

Quick check. A will gives £50,000 to the residential home for the elderly in my village, for the upkeep of its building. It also gives £30,000 for the care of elderly people in need in my village. The home was run by a charitable company which was wound up and dissolved three years before the testator died, and no successor took over its work. Several other charities care for elderly people there. How should the executors deal with the two gifts?

Three candidate answers. One: both gifts may be applied cy-près, because each shows a general charitable intention. Two: both gifts fail, because the charity named in the first no longer exists. Three: the first falls into residue, and the second may be applied cy-près. Pause here if you want a moment.

The answer is three, and the will has to be read gift by gift. The first is to a named institution, for the upkeep of that institution's own building. That points to one body and no other, which is a specific intention. The company was dissolved before the testator died, so the legacy lapses and the £50,000 falls into residue.

The second gift is expressed as a purpose, the care of elderly people in need, and is tied to no particular body. A general charitable intention appears, so it may be applied cy-près to another charity doing that work. Option one fails on the first gift; option two ignores what saves the second.

Five things to take away. One: charitable status needs all three of exclusively charitable purposes, a recognised description in section 3, and public benefit under section 4. Our coach's trust had all three long before anyone thought about the register. Two: nothing is presumed, so public benefit is proved on the evidence, as the enclosed community found.

Three: a class defined by its relationship to the settlor is not a section of the public, and poverty is an exception to that rule alone. Four: a non-charitable purpose trust fails unless somebody can enforce it, save for the anomalous few, and those must be confined to the perpetuity period.

Five: cy-près needs a general charitable intention only where the gift failed at the outset. Next time, Resulting Trusts.

Practise this topic with exam-style questions at sqe1prep.co.uk. This episode is for education and exam revision only, not legal advice, and we are not affiliated with or endorsed by the SRA or Kaplan.