Charitable Trusts

Charitable Trusts Professor Cameron Stewart

Introduction • Charitable trusts are express trusts which exist for a purpose rather than for identifiable beneficiaries. In Attorney-General (NSW) v Perpetual Trustee Co Ltd (1940) 63 CLR 209 at 222, Dixon and Evatt JJ stated: • A charitable trust is a trust for a purpose, not for a person. The objects of ordinary trusts are individuals, either named or answering a description, whether presently or at some future time. To dispose of property for the fulfillment of ends considered beneficial to the community is an entirely different thing from creating equitable estates and interests and limiting them to beneficiaries. In this fundamental distinction sufficient reason may be found for many of the differences in treatment of charitable and ordinary trusts.

Differences with other express trusts • No beneficiary principle • Public trusts • Indestructible • Courts nd AG have power of supervision

‘Charitable’ Purpose • Statute of Charitable Uses 1601 (43 Eliz I, c.4) • the relief of poverty; • care of aged persons and the sick; • care of soldiers and mariners; • advancement of education through universities and schools; • repair of bridges, havens, ports, churches and highways; • the care of orphans; • the maintenance of prisons; • the marriage of poor maids; • support for young tradesmen and persons decayed; • the relief or redemption of prisoners or captives; and • relief for poor persons concerning the payment of taxes

‘Charitable’ Purpose • Gilmour v Coates [1949] AC 426 at 442-3; [1949] 1 All ER 848 at 852, by Lord Simonds: • [F]rom the beginning it was the practice of the court to refer to the preamble of the statute in order to determine whether or not it was charitable. The objects there enumerated and all other objects which by analogy are ‘deemed within its spirit and intendment’ and no other objects are in law charitable. That is settled and familiar law.

‘Charitable’ Purpose • Royal National Agricultural and Industrial Association v Chester (1974) 3 ALR 486 a trust for the breeding and racing of pigeons failed because there was no analogous charitable purpose in the preamble.

‘Charitable’ Purpose • A trust for the not-for-profit publication of law reports was found to be charitable in Incorporated Council of Law Reporting (Qld) v Federal Commissioner of Taxation (1971) 125 CLR 659; [1972] ALR 127, on the grounds that the reporting of cases was fundamental to society in the same way that the maintenance of roads, and the promotion of agriculture were fundamental and within the spirit of the preamble

‘Charitable’ Purpose • Commissioner for Special Purposes of Income Tax v Pemsel [1891] AC 531 at 583. His Lordship stated at • ‘Charity’ in its legal sense comprises four principle 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, not falling under the preceding heads.

Reform • Report of Inquiry Into the Definition of Charities and Related Organisations 2001 • Charities Bill in 2003, • Extension of Charitable Purpose Act 2004.

Charities Act 2013 • Section 5 of the Act defines ‘charity’ as an entity that is a not-for-profit entity in which all of its purposes are: (i) charitable purposes that are for the public benefit or (ii) incidental or ancillary to, and in furtherance or in aid of, the entity’s charitable purposes that are for the public benefit. • None of the entity’s purposes can be a disqualifying purpose. • Finally, an individual, a political party or a governmental entity cannot also be a charity.

Section 10 The requirement of public benefit (the meaning of which is discussed below) mentioned above does not apply to an entity if: • the entity is an association of individuals that has an open and non-discriminatory membership; and • the entity is established for the purpose of assisting individuals affected by a particular disadvantage or discrimination, or by a need that is not being met; and • the entity is made up of, and controlled by, individuals who are affected by the disadvantage, discrimination or need; and • all of the entity’s criteria for membership relate to its purpose; and • the entity’s membership is open to any individual who satisfies the criteria • Section 10(2) of the Act stipulates that the requirement of public benefit does not apply to an entity if the entity is a closed or contemplative religious order that regularly undertakes prayerful intervention at the request of members of the general public

Definitions • The key elements of the definition are: • entity • charitable purpose • public benefit • disqualifying purpose • governmental entity.

Public benefit • The benefit must be for the entire public or for a significant proportion of it: Ford & Lee at [19070]. However, the purpose of the trust need not be effected in the jurisdiction for it to be of benefit to the public: Kytherian Association of Qld v Sklavos (1958) 101 CLR 56.

Public benefit • To illustrate these principles, trusts for the advancement of religion have failed where they have the object of favouring cloistered or contemplative orders who have little contact with the outside world: Gilmour v Coats [1946] AC 426. Trusts established to stop the practice of vivisection have also failed because there would be an overall detrimental effect to the public should such experimentation cease: Anti-Vivisection Society v Inland Revenue Commissioners [1948] AC 31.

Public benefit • Re Compton [1945] Ch 123. Lord Greene MR stated at 131, • …[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 charitable gift. And this, I think, must be the case whether the relationship be near or distant, whether it is limited to one generation or is extended to two or three or in perpetuity. The inherent vice of the personal element is present however long the chain and the claimant cannot avoid basing his claim on it.

Public benefit • The Compton test has been used to strike down charitable trusts when the potential recipients of the trust funds have been defined by reference to blood relation, employment or contract • BUT the requirement for public benefit does not apply to trusts for the relief of poverty: Dingle v Turner [1972] AC 601; [1972] 1 All ER 878. Secondly, trusts for people from particular geographic locales do not offend the rule, as they can be applied regardless of inherent personal characteristics: Re Tree [1948] Ch 325; 2 All ER 65. Thirdly, a request by the creator that family members, or others connected by association or contract, be given preference in the administration of the charity, will not invalidate the trust

Trusts for Political Purposes • Bowman v Secular Society [1917] AC 406; [1916-17] All ER Rep 1. • A trust will be deemed to be political when it has the primary purpose of changing the law: Anti-Vivisection Society v Inland Revenue Commissioners [1948] AC 31. • Examples include a trust to establish a nationalised health service, Re Bushell (dec’d) [1975] 1 All ER 721, or to reform the alphabet, Re Shaw [1957] 1 All ER 745. • Royal North Shore Hospital of Sydney v Attorney-General (NSW) (1938) 60 CLR 396 • Santow J extra judicially • There is a crucial distinction, inhering in McGovern, between permissibly changing the law within the framework of its established policy and impermissibly reversing the law along with its established policy. Incremental change to the law consistent with its established direction may indeed be permitted today.

Trusts for Political Purposes • Attorney General (NSW) v The NSW Henry George Foundation Ltd [2002] NSWSC 1128 • Aid/Watch Incorporated v Commissioner of Taxation of the Commonwealth of Australia (2010) 241 CLR 539 • Re Greenpeace of New Zealand Inc [2013] 1 NZLR 339

Trusts for the Relief of Poverty • In order to be valid as a gift for the relief of poverty the law does not require that the persons to be benefited should be destitute, or even on the border of destitution: Re Gillespie (dec'd) [1965] VR 402 at 406, per Little J. Rather a trust will relieve poverty when it provides money to those who would have to ‘go short’ because of their financial status: Re Coulthurst (dec'd)

Trusts for the Relief of Poverty • The Aged • The Impotent

Trusts for the Advancement of Education • It includes gifts to particular educational institutions, such as schools and universities, which, coming under the preamble, are prima facie charitable • Educational trusts can embrace specific purposes which are related, sometimes loosely, to education. Trusts for scholarships, buildings and the dramatic arts are all examples of valid educational trusts

Trusts for the Advancement of Religion • The definition of ‘religion’ was provided by Mason CJ and Brennan J in Church of the New Faith v Commissioner of Pay-roll Tax (Vic) (1983) 154 CLR 120 at 136: • [F]or the purposes of the law, the criteria of religion are twofold: first, belief in supernatural Being, Thing or Principle; and second, the acceptance of canons of conduct in order to give effect to that belief, though canons of conduct which offend against ordinary laws are outside the area of immunity, privilege or right conferred on the grounds of religion.

Trusts for the Advancement of Religion • Advancement of Religion Generally • Trusts for Buildings, Grounds and Cemeteries • Trusts for Prayers, Masses and Ceremonies • Gifts to Religious Office Bearers

Trusts for Purposes which are Beneficial to the Community • Gifts to a Community • Public Works and Beautification Trusts • Animals and Wildlife • Protection from War and Disaster • Relief of Taxes • Public Recreation and Sport • Public Safety and Defence

Trusts with Mixed Charitable and Non-Charitable Purposes • Compendious gifts include gifts for ‘objects of benevolence and liberality,’ Morice v Bishop of Durham. Additionally, if the gift is worded to give the trustee a discretion to choose between charitable and non-charitable purposes, the gift will fail. An example of such a gift is a gift for ‘charitable or benevolent purposes’

Enforcement and Administration of Charitable Trusts • General Administrative Schemes • Cy-pres Schemes • Initial Impossibility • Supervening Impossibility • Satisfaction of Original Purpose • Statutory Powers

Valid Non-Charitable Purpose Trusts • Trusts for the maintenance of pets • trusts for the construction and maintenance of tombs unassociated with churchyards

Problem • At the end of World War II, Pierre Culliford, a dentist’s assistant, left his birthplace in Belgium and emigrated to Australia. He settled on a farm he purchased near Sommersby. The farm was in a very run-down condition when he purchased it. Pierre devoted all his time, energy and resources to establishing his beloved farm, which he named ‘Schtroumpfland’ (the name of the Belgian village in which he was born).

Problem • In 1989 Pierre contracted motor neurone disease. As a result of his affliction Pierre came into contact with the NSW Motor Neurone Disease Research Council, an unincorporated body, which was engaged in research for an effective cure for motor neurone disease, and which had its research centre and headquarters in Gosford.

Problem • In April 1990, the NSW Motor Neurone Disease Research Council was effectively dissolved, but its functions were taken over by a newly formed body called the Motor Neurone Disease Research Institute of NSW. At all relevant times the only other institution concerned with motor neurone disease in NSW was the Newcastle-based Motor Neurone Disease Sufferers Association.

Problem • As a result of Pierre’s disease he was unable to work his farm and the farm proceeded to decline rapidly. In May 1997 Pierre died. At the time of his death the ‘Schtroumpfland’ farm was worth $350,000, but had ceased to generate any income at all. It was estimated that the costs of repair would run into the millions.

Problem • In his will Pierre appointed his nephew Johan as executor and trustee as well as residuary beneficiary. • Consider the following provisions left by Pierre to his trustee in his will: a) $50,000 to the Anti-Motor Neurone Disease Centre. b) The whole of my beloved ‘Schtroumpfland’ farm for a training farm for orphan lads being Australians. c) $5000 to provide a stone and marble memorial to past and present sufferers of motor neurone disease..

Answer • The first disposition suffers from an initial impossibility as the gift is to a non-existing institution. Such a gift will fail in the absence of a general charitable intention that can be effected cy-près.A general charitable intention is present, given that the gift appears intended to address the woes associated with motor neurone disease. Such a gift is clearly a trust to aid the impotent:. A cy-près scheme could be ordered under the inherent power of the court. • The court will examine the evidence of the purposes of the association to see which association carries out purposes as ‘near as possible’ to the intention of the testator.

Answer • The second gift fails because of initial impossibility. Here the initial impossibility is related to the fact that the trust is impractical, given the condition of the farm. The facts of this question are very similar to those in Attorney-General (NSW) v Perpetual Trustee Co Ltd (1940) 63 CLR 209

Charitable Trusts