Charitable trusts in English law are a form of express trust dedicated to charitable goals. There are various advantages to charitable trust status, including exemption from most forms of tax and freedom for the trustees not found in other types of English trusts. To be a valid charitable trust, the organization must demonstrate both a charitable purpose and a public benefit. Applicable charitable purposes are normally divided into categories for public benefit, including the relief of poverty, the promotion of education, the advancement of health and saving of lives, the promotion of religion, and all other types of trusts recognized by the law. There is also a requirement that the trust's purposes benefit the public (or some section of the public), and not simply a group of private individuals.
Such trusts will be invalid in several circumstances; charitable trusts are not allowed to be run for profit, nor can they have purposes that are not charitable (unless these are ancillary to the charitable purpose). Additionally, it is considered unacceptable for charitable trusts to campaign for political or legal change, although discussing political issues in a neutral manner is acceptable. Charitable trusts, like other trusts, are administered by trustees, but there is no direct relationship between the trustees and the beneficiaries. This results in two things: firstly, the trustees of a charitable trust have more freedom to act than other trustees, and secondly, beneficiaries cannot bring a court case against the trustees. Instead, the beneficiaries are represented by the Attorney General for England and Wales as parens patriae, who appears on behalf of The Crown.
Jurisdiction over charitable disputes is shared equally between the High Court of Justice and the Charity Commission. The Commission, as the first point of contact, is tasked with regulating and promoting charitable trusts, as well as providing advice and opinions to trustees on administrative matters. When the Commission feels that there has been mismanagement or maladministration, it can sanction the trustees, removing them, appointing new ones, or temporarily taking the trust property itself to prevent harm. In cases of flaws with a charity, the High Court can administer schemes directing the function of the charity, or even, under the Cy-près doctrine, change the purpose of the charity or gift entirely.
Creation
Being a form of express trust, charitable trusts are subject to certain formalities during their creation. These requirements vary depending on whether the gift that establishes the trust is given during life, after death, or involves land. In the case of a gift given after death through a will, the will must adhere to Section 9 of the Wills Act 1837, which mandates the will to be in written form and signed by the testator (or someone else present, following the testator's instructions). It should be clear that the testator intended the will to be effective, and the signature must be executed or acknowledged by two or more witnesses. When all of these conditions are fulfilled, the will becomes a valid document, enabling the charitable trust to be formed. When the gift pertains to land and is made during the donor's lifetime, it must comply with Section 53(1)(b) of the Law of Property Act 1925, necessitating the agreement to be documented in writing and signed by the donor.Hudson (2009) p.212 In cases where the gift involves personal property and is made inter vivos, there are no formal prerequisites; it suffices for an oral declaration to establish the trust. Once properly constituted, a charitable trust, like all express trusts, becomes irrevocable unless the trust instrument explicitly allows for such revocation.Hudson (2009) p.213
Advantages of charity status There are a variety of advantages to charity status. Within English trusts law, a standard express trust has a relationship between the trustees and the beneficiaries; this does not apply to charitable trusts, partially because of the special definition of trustee used and partially because there are no individual beneficiaries identified in a charitable trust. Instead, the Attorney General for England and Wales sues on behalf of beneficiaries to enforce a charitable trust. Because of this lack of a relationship, the trustees' powers are far wider-ranging, only being regulated by the Charity Commission and actions brought by the Attorney General; the beneficiaries have no direct control.Hudson (2009) p.1004 Charitable trusts are also exempt from many formalities when being created, including the rule against perpetuities. The trustees are also not required to act unanimously, only with a majority.Hudson (2009) p.1005
Tax law also makes special exemptions for charitable trusts. They are free from the income tax paid by individuals and companies, and also the corporation tax paid by incorporated and unincorporated associations. There is no requirement for charitable trusts to pay capital gains tax or council tax, although they are obliged to pay VAT.Hudson (2009) p.1006 This freedom from tax liability applies not just to charitable trusts, but also to people who donate to them. Individuals who donate via Gift Aid are free from paying tax on that amount, while companies who give gifts to charity can claim tax on the amount back from HM Revenue & Customs.Hudson (2009) p.1007
Definitions The definitions of a trustee and a trust within charitable trusts differ significantly from the norm. In particular, according to the Charities Act 1993 (section 37):
There is no statutory definition of what a charity is; it is instead dealt with in a roundabout way. The Charities Act 2006 states in section 1(1) that:
Charitable purpose
The first definition of a "charitable purpose" was found in the preamble to the Charitable Uses Act 1601. The standard categorisation (since all previous attempts to put it on the statute books were "unduly cumbersome") was set out by Lord Macnaghten in IRC v Pemsel, AC 531 where he said that "Charity in its legal sense comprises four principal divisions: Trusts for the relief of poverty; trusts for the advancement of education; trusts for the advancement of religion; and trusts for other purposes beneficial to the community". This "charitable purpose" was expanded on in Section 2(2) of the Charities Act 2006, but the Macnaghten categories are still widely used.Edwards (2007) p.206
Trusts must also be for "public benefit", which was considered at length in Oppenheim v Tobacco Securities Trust.[1951 AC 297] 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 the settlors (British American Tobacco) and the beneficiaries. The nature of charitable trusts means that the definition of "public benefit" varies between Macnaghten's four categories.Edwards (2007) p.211
Poverty The 1601 Act stated that charities for the benefit of the "aged, impotent and poor people" had an appropriate purpose; it is accepted that these may appear individually. A charity does not have to be for the benefit of people who are both poor, impotent and aged to be valid, only one of them.Edwards (2007) p.212 "Poverty" is a subjective term, and in Re Coulthurst, Ch 661 Sir Raymond Evershed indicated that it should be treated as such; "poverty, of course, does not mean destitution ... it [means] persons who have to 'go short' ... due regard being had to their status in life and so forth". This appears to indicate that a millionaire who loses half of his income may be considered "poor", in that he is unable to have the lifestyle he is accustomed to. Some limits were set to this provision by Lord Simonds in IRC v Baddeley, 1 All ER 525 where he wrote that:
The gift that creates the charitable trust, whatever the definition of poverty accepted by the courts, must be for the poor and nobody else. In Re Gwyon,Re Gwyon 1 Ch 255 money was left to provide short trousers to children in Farnham. While this was a necessity under the standard definition of poverty, the gift was not limited to the poor, and instead went to every child in the area. As a result, the trust failed.
The "poverty" category is a "major exception" to the rule on personal relationships laid down in Oppenheim v Tobacco Securities Trust. In Dingle v Turner,Dingle v Turner 1 All ER 878 a charitable trust was established to help poor employees of Dingle & Co. While the beneficiaries were all linked by a personal relationship (their employer), the courts ruled that poverty is an exception to the Oppenheim rule. Academics Richard Edwards and Nigel Stockwell argue that this is because allowing such trusts to exist relieves the rest of society for having to provide for poor people; as a result, there is "public benefit" in a wider way. The general public benefit rule in the "poverty" category is that "gifts for the relief of poverty among poor people of a particular description" is charitable; "gifts to particular persons, the relief of poverty being the motive of the gift" are not.Edwards (2007) p.214
Education
As with poverty, this category is also found in the 1601 Act's preamble, which refers to charities established for the "Maintenance of ... Schools of Learning, Free Schools, and Scholars at Universities". The common law, over the years, has recognised a wide area covered by "education". This includes the education of the young, a particularly wide category, described by Lord Hailsham in IRC v McMullen,IRC v McMullen 1 All ER 884 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,Re Shaw 1 All ER 748 Harman J excluded schools for pickpockets or prostitutes. "Education" also includes research, as long as the subject is useful and the gift makes some requirement that the information be made available to others and disseminated. In Re Hopkins,Re Hopkins 3 All ER 46 a gift was given to the Francis Bacon society to find proof that William Shakespeare's plays were written by Bacon. Wilberforce J held that it was a valid gift, as "the discovery would be of the highest value to history and to literature". He also gave the definition of research required for a gift to be valid:
This definition was expanded on by Slade J in McGovern v Attorney General, where he said that:
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,Royal Choral Society v IRC 2 All ER 101 as is the promotion of a particular composer, seen in Re Delius.Re Delius 1 All ER 854 For a gift to be charitable, the courts must be convinced that the subject of advancement be of artistic merit. This includes famous composers, as seen above, and social graces, as in Re Shaw's Wills Trust.Re Shaw's Wills Trust 1 All ER 49 When there is doubt, the courts ignore the opinions of the beneficiary and instead rely on experts, as in Re Pinion.Re Pinion 1 All ER 890 This area is covered by the Charities Act 2006, which lists "the advancement of citizenship or community development" and "the advancement of the arts, culture, heritage or science" as valid types of charitable trust.Edwards (2007) p.217
Religion