CHARITABLE TRUSTS

CONTENTS

1.0    Introduction

2.0    Objectives

• Main Content
• Meaning and Features of Charitable Trusts
• Classifications of Charitable Trusts
• The Cy-pres Doctrine

4.0    Conclusion

5.0    Summary

6.0    Tutor-Marked Assignment (TMA)

7.0    References/Further Readings

INTRODUCTION

Charitable trusts unlike private trusts have as their objects, the benefit of  the general public or a significant portion of it. Despite the common use of charitable trusts in England and the tax advantages given to this class of trusts, the use of it has been at a slow pace in Nigeria. The reason for this can be  attributed  to the great difference in the cultural and social life/orientation of the people in England and Nigeria. Also, the economic situation in Nigeria has to some extent limited the setting up or donating to charities in Nigeria. Notwithstanding, the use of  charitable trusts has witnessed a steady growth especially with respect to the advance of education in Nigeria. It is thus important for  you to be familiarized  with the law and practice of charitable trusts in Nigeria.

OBJECTIVES

In this Unit, you will be taken through the meaning of what may be described as charitable trust, the relevant statutes in this regard and the major  divisions  to which charitable trusts have been classified. You learn about the  distinctive features that marked charitable trusts different from private trusts, the  tax and  other advantages enjoyed by charitable trusts and the liberal construction that charitable trusts have enjoyed in the law courts, owing partly due to the fact that chartable trusts in most cases have no human beneficiaries to enforce them. You will also be introduced to the Cy-pres doctrine. At the end of this Unit, you should be able to:

• Distinguish between a charitable and a private trust
• Know the essential features of a charitable trust
• Mention the major divisions of charitable trust
• Understand the law that guides the creation of charitable trusts in Nigeria
• Explain why charitable trusts enjoy liberal construction in the Courts
• Explain who is responsible for the enforcement of charitable trust
• Appreciate when the cy-pres doctrine will be applied

MAIN CONTENT

Meaning and Features of Charitable Trusts

The meaning of charitable trust is best discerned by examining the purpose or objects of charitable trusts, as defining the word ‘charity’ or ‘charitable’ like most legal terms will be a difficult task. This difficulty was acknowledged in  Re  Nottage (1895) 2 Ch. 649 as the legal meanings of the said words are  different from those ascribed to them in common usage. The provision of statutes have generally served as the relevant guide as to what can be regarded as charitable. Of great importance in this regard is the Charitable Uses Act 1601 commonly referred to as the Statute of Elizabeth, an Act of parliament 43 Eliz I, c.4. The preamble to this Statute contained a catalogue of objects that can be regarded as charitable. Although, the Statute of Elizabeth has been repealed by the Mortmain and Charitable Uses Act, 1888, Section 13(2) of the latter Act preserved the provisions of the said preamble to the Statute of Elizabeth. We shall examine the provisions   of the said preamble in the next sub-unit.

The two essential features you need to know about charitable trusts are that, before a trust can qualify as a charitable one, the element of public benefit, i.e. it must be for public benefit and the class of the intended beneficiaries must not be on the basis of personal relationship. If these elements are absent in a trust, it cannot be regarded as charitable. However, trusts for the relief of poverty are exempted from this requirement of public benefit because such trusts may be restricted to family members or other restricted class of people.

Thus, a trust must be for the benefit of the community or a significant portion of it for it to pass the public benefit test. See Verge v. Somerville (1924) A.C. 496. A trust created for the training and education of the grandchildren of the testator and other child, was held not to be a charitable one. See Re Obabunmi Pedro [1961]

L.L.R. 127. Also, in Re Crompton [1945] Ch. 299 a trust created for the education of the descendants of three named individuals only, failed the test of  public  benefit.

However, you need to know that, the fact that the number or size of the intended beneficiaries of a charitable trust is small may not necessarily rob it of its public benefit feature, if the class of the intended beneficiaries is not to be determined purely on the grounds of personal relationship to the testator, settlor or donor. See Re Simson [1946] Ch. 299 where gift made to only one person. On the other hand,  a trust may be created for the benefit of a larger number of people, yet fail to pass the test of public benefit. See Oppenheim v. Tobacco Securities Trust Co. Ltd.

[1951] A.C. 297 where in spite of a trust for the education of children of  employees and ex-employees of a particular company with the number of intended beneficiaries running into over a hundred thousand people was nonetheless held  not to be charitable based on the personal relationship between the settlor and the potential beneficiaries.

It is equally essential for you to know some of the certain peculiarities that marked charitable trusts different from private trusts, although the two classes of trusts are express. As noted above, charitable trusts in most cases have no human objects or beneficiaries who can enforce them hence; it is the responsibility of the Attorney General to enforce such trusts. This is one of the reasons why the lack of human objects will not invalidate a charitable trust, unlike the case with a private trust which will fail for uncertainty of objects. However, in exceptional cases where charitable trusts have human beneficiaries, they do not have power  of  enforcement.

Although charitable trusts are subjected to the perpetuity rule like private trusts by which the subject matter of a charitable trust must vest within the  perpetuity period, unlike private trusts however, the part of the perpetuity rule relating to the rule against inalienability does not apply to charitable trusts. See Re Gwyon [1930] 1 Ch. 255.

SELF ASSESSMENT EXERCISE (SAE) 1

Mention and discuss two essential features that a trust must have before it can qualify as a charitable one.

Classifications of Charitable Trusts

Section 13(2) of the Mortmain and Charitable Uses Act, 1888 which preserved the provisions of the preamble to the Statute of Elizabeth, contained a catalogue of objects that can be regarded as charitable which are as follows:

The relief of the aged, impotent and poor people, the maintenance of sick and maimed soldiers and mariners, schools of learning, free schools and schools in universities; the repair of bridges, ports, havens, causeways, churches, sea-banks and highways; the education and preferment of orphans, the relief, stock or maintenance for houses of correction; the marriage of the poor maids; the supportation, aid and the relief or redemption of prisoners or captives; help of young tradesmen, handicraftsmen and persons decayed; and the aid or ease of any poor inhabitants concerning payment of fifteens, setting out of soldiers and other taxes.”

The above objects have been classified into four main headings for  convenience  by Lord MacNaughten in Commissioners for Special Purposes of Income Tax v. Pemsel (1891) A.C. 531 at 583 as stated hereunder:

i.) Trusts for the relief of poverty;

ii.) Trusts for the advancement of education; iii.) Trusts for the advancement of religion; and

iv.) Trusts for other purposes beneficial to the community.

i.) Trusts for the Relief of Poverty

Although this class of trust may not necessarily satisfy the public benefit requirement, it is nonetheless accepted as charitable even if the intended beneficiaries of the trust are drawn based on personal consideration. This makes this class of trust an exemption to the public benefit test. This classification is  based on the preamble to the Statute of Elizabeth which listed ‘the relief of aged, impotent and poor people’ as some of the objects of charitable trusts.

In construing the words ‘aged, impotent and poor’, interpreted the words are to be read disjunctively such that it will not be interpreted as meaning someone who is aged, poor and impotent; which will make nonsense of the provision. See  Re Glyn’s Will Trusts [1950] 2 All E.R. 1150. What is essential for you to note here is that, a trust must have the object of being applied to the relief of poverty and it is not material that the word ‘poverty’ was not specifically used or stated in the document. Although the meaning of ‘poverty’ was not given,  gifts to those  who are in need, the indigent, ladies of limited means See Re Gardom [1914] 1 Ch. 662 and in relief of poverty, have generally been upheld. It is not required that the intended beneficiaries must be destitute or in abject poverty. See Re Coulthurst [1951] Ch. 661 at 665 per Evershed M.R.

Where the beneficiaries of a trust cannot be classified as poor or in need, it will not be upheld as charitable, such as where gift was made for working class and their families, which itself does not evidence poverty. Gifts to beneficiaries who are old do not present difficulty as they are easily discerned from the expression used e.g. gift to old people over 65 years resident of a particular district. See Re Robinson [1951] Ch. 198.

ii.) Trusts for the Advance of Education

Education has been construed in the wider sense beyond teaching and includes the promotion of arts and graces of life. As a result of the perceived value of education to the society, various acts and gifts have been held to constitute the advancement of education. Some of these are, chess playing among boys and youth, see Re Dupree’s Deed Trust [1945] Ch. 16; advancement of learning all over the world, see Whicker v. Hume (1858) 7 H.L. Cas. 124; for the establishment and support of law reports, see Incorporated Council of Law Reporting for England and Wales v. A.G. [1972] Ch. 73; for the establishment and support of professorship and lectureships, see A.G. v. Margaret and Regius Professors In Cambridge (1682) 1 Verno 55. the spread of knowledge and appreciation of scholarships and prizes in Universities and schools see University College of North Wales v. Taylor (1908) p. 140; promotion of squash racket courts and a prize, see Re Mariette (1915) 2 Ch. 284.

An educational trust fund created for the benefit of the community but with preference to a particular class and to a certain percentage, such as where preference was given to the families of employees of a particular company up to a maximum of 75 per cent of the fund was held to be charitable. See Re Koettgen’s Will Trusts [1954] Ch. 252.

Other gifts have been held not charitable such as a public library to be devoted entirely to works of pornography or of a corrupting nature were held  not  charitable. The important thing to note here is where the element of public benefit is lacking, it will not constitute charity.

iii.) Trusts for the Advance of Religion

The word ‘religion’ has not been exclusively defined but in Karen Kayemeth Le Jisroel v. IRC [1931] 2 K.B. 465 at 477 per Lord Hanworth MR, the promotion of religion have been interpreted to mean the promotion of spiritual teaching in a  wide sense, and the maintenance of the doctrines on which it rests, and the observances that serve to promote and manifest it – not merely a foundation or cause to which it can be related. In spite of this, the courts have taken a liberal  view on the construction of the word ‘religion’ in order to ensure that the law is neutral between different religions and not to make distinction between one sect and another. See Neville Estates Ltd. v. Madden [1961] 3 All E.R. 769.

If however, the tenets of a particular sect inculcate doctrines adverse to the very foundation of all religions or subversive of all morality, the court will not assist to execute such bequest, but declare it void.

However, if the tendency were not immoral, although the court might consider the opinions sought to be propagated foolish or even devoid of foundation, it will not on that account declare it void. See Thornton v. Howe (1862) 54 E.R. 1042 at 1043-4. Thus, a bequest to promote atheistic doctrines was held to be charitable although this was not in advance of religion. A trust for the promotion of Jewish religion was also held to be charitable. Re Thackrah (1939) 2 All E.R. 4

Gift to a group not concerned with the promotion of religion was held not charitable. See United Grand Lodge v. Holborn Borough Council (1957) 3 All E.R. 281. Also, a society whose principal object is the teaching of a doctrine,  which may be regarded as philosophical or metaphysical conception was held not  to constitute the advancement of religion. See Berry v. St Marylebone Borough Council [1958] 1 Ch. 406. In this regard, the religion must be one concerned with relationship between man and God, and its purposes are for the benefit of the  public and not one based on ethics; which is concerned with man’s relationship with man. See Re South Place Ethical Society [1980] 1 W.L.R. 1565.

In the Nigerian case of Re Obabunmi Pedro  (supra) a trust for the saying of  Masses to the dead was held to be charitable while the bequest of a room to be  used as a private family mosque in a private house was held not charitable. See Iyanda v. Ajike (1948) 19 N.L.R. 11. Trusts for the repair of parish yard see Re Vaugham (1886) 33 Ch. D. 187; for the maintenance of a cemetery, a gift for the stipend of clergy; have been held to be charitable.

iii.) Trusts for other Purposes Beneficial to the Community

As the heading implies, this trust covers all others with have the element of public benefit apart from the three headings earlier treated. A trust of this nature includes those promoting the mental or moral improvements of the community, such as gift for the welfare of cats and kittens; see Re Moss [1949] 1 Ch.D. 495 or the benefit  of animals, see Re Wedgwood [1915] 1 Ch. 113; for home for lost dogs; see Re Douglas (1887) 35Ch.D. 472.

A gift for the specific animals, see Re Dean (1889) 41 Ch.D. 552; trusts to procure a change in the law, see Bowman v. Secular Society [1917] A.C. 406;  were held  not charitable.

Trusts for the welfare of animals in particular were given recognition as a result of their benefit to mankind. Trusts for the promotion of sport per se,  has been  held not charitable, see Re Nottage (1895) 2 Ch. 649; except if such trust is meant for  the promotion of sport within a charitable institution such as schools, colleges and Universities. See Re Mariette [1915] 2 Ch. 284. Trust for the building of recreational facilities has been held charitable. See Re Jones Deceased [1918] 3 N.L.R 80.

What you need to note under this heading is that, four sub-headings can be categorized and these are:

i.) Trusts for the welfare of animals. ii.) Trusts for sports and recreation. iii.) Political trusts.

iv.) Miscellaneous.

The first two have been examined in details, while trusts for political purposes are not charitable since the courts have no means of determining their likelihood of benefit to the public, for example, where they promote the cause or interest of a political party, promote change in law or procuring a reversal of  government policy. See Re Hopkinson [1949] 1 All ER 346. Under the miscellaneous sub- headings, this covers gifts or trusts for purposes not covered by the other three sub-heads, e.g. gift to a voluntary fire brigade, gift to promote the defence of a country from attack. See Re Driffill [1950] Ch. 92. Trust to assist victims of flood  is also covered by the fourth branch. See Re North Devon and West Somerset  Relief Fund [1953] 2 All E.R. 1032.

You need to understand that profit making charitable trusts such as schools, medical or housings bodies, will still retain their status so long as they do not distribute the profits to members. See Re Resch’s W.T. [1969] 1 A.C. 514. Also,  not that as a result of their benefit to the public, charitable trusts enjoys some tax advantages over other classes of trusts. For example, charitable trusts  are  exempted from tax on their income on their investment; properties donated/bequeathed to charitable institutions are exempted from capital gains or transfer tax on disposals made by the them (see for example, Section 17 Capital Gains Tax), and donations made by companies for charitable purposes are deductible from the income of companies for the purposes of tax computations.  See Section 21(5)(e) of the Companies Income Tax Act. Charitable trusts are in some cases either wholly or partly exempted from stamp duties.

The above reasons accounted for why you will observe that in many of the cases, a usual party is the Inland Revenue Commissioners, abbreviated as “I.R.C.”, which  is the body in charger of revenue generation in England. This body has to be involved in the cases in order to determine whether some of the trusts qualify as charitable in order to be exempted from tax or not.

SELF ASSESSMENT EXERCISE (SAE) 2

Discuss the sub-heads of trusts covered by the heading of trusts for other purposes beneficial to the community.

 The Cy-pres Doctrine

A discussion of this doctrine is important for you as a result of its usefulness in cases of ineffective or failed trusts. Under the doctrine, when a private trust is ineffective or fails, the property results to the settlor or the residuary estate in case he is deceased. In the case of a charitable trust, where this is impracticable or impossible, the property results to the settlor or his estate (if deceased), except in cases where a general charitable intention can be presumed on the part of the settlor. See Re Rymer [1895] 1 Ch. 19.

Where the settlor has a general charitable intention, the trust property will be applied cy-pres to other charitable purposes as nearly as possible to the original purposes. Cy-pres doctrine will also be applied in cases where an effective charitable trust becomes impracticable or impossible to perform, irrespective of whether the settlor has a general charitable intention or not.

CONCLUSION

Charitable trust is an important class of trusts as a result of the public benefit they offer. However, it is crucial to the validity of this trust that the class  of  the intended beneficiaries must not be one based on personal relationship. Some of the varying trusts considered on the major four headings of charitable trusts signify compliance with the public benefit element, except trusts for the relief of poverty. Charitable trusts thus have to be carefully drafted or worded in order to ensure that they incorporate its essential features; otherwise, the trust will fail and result to the residuary estate of the settlor or testator.

SUMMARY

In this Unit, you have learnt that apart from the trusts for the relief of poverty, charitable trusts must be for the public benefit or a significant portion of it and that the class of the intended beneficiaries must not be on the basis of personal relationship. You have also learnt that charitable trusts in most cases have no human objects or beneficiaries, and unlike private trusts, cannot  fail  for uncertainty of objects. You equally learnt about the classification of charitable trusts into four main headings, and that out of these four classes, trusts for other purposes beneficial to the community has been further sub-divided into trusts for the welfare of animals, sports and recreation, political trusts, and miscellaneous trusts. You have been exposed to why charitable trusts enjoy some tax advantages over other classes of trusts and the Cy-pres doctrine. From a consideration of the above, you have been able to distinguish a charitable and a private trust,  understand its essential features, and explain why charitable trusts enjoy liberal construction in courts. In the next Unit, you will learn about resulting trusts.

TUTOR-MARKED ASSIGNMENT (TMA)

1. Discuss any two of the classifications of charitable trusts according to Lord MacNaughten in Commissioners of Income Tax v. Pemsel (1891) A.C. 531 at 583
2. The fact that the number of the intended beneficiaries of a charitable trust is small may not necessarily rob it of its public benefit feature, and on the other hand, a trust may be created for the benefit of a larger number of people, yet fail to pass the test of public benefit. Discuss.

REFERENCES/FURTHER READINGS

Banire, Muiz. (2002). The Nigerian Law of Trusts. Lagos: Excel Publications. Fabunmi, J.O. (2006). Equity and Trusts in Nigeria. Ile-Ife: Obafemi Awolowo

University Press Ltd.

Hayton, D.J. (2001). Hayton & Marshall Commentary and Cases on The Law of Trusts and Equitable Remedies. London: Sweet & Maxwell.

Jegede, M.I. (1999). Law of Trusts, Bankruptcy and Administration of Estate.

Lagos: MIJ Professional Publishers Limited.

Capital Gains Tax, Cap. C1, Laws of the Federation of Nigeria, 2004. Companies Income Tax Act, Cap. C 21, Laws of Federation of Nigeria, 2004.