LAW OF TRUST: Difference Between Charitable Trust And Express Private Trust

Difference Between Charitable Trust And Express Private Trust

Trust, although defies satisfactory definition, has been defined by several authors. In this regards, Fabunmi noted that like many other definitions of legal terms, no definition of a trust appears to have been accepted as both comprehensive and exact. However, among these writers, the most acceptable definition is that of Professor Keeton who defined trust as thus:

"A trust...is the relationship which arises wherever a person called the trustee is compelled in equity to hold property whether real or personal, and whether by legal or equitable title, for the benefit of some persons (of whom he may be one and who are termed cestuis que trust) or for some object permitted by law in such a way that the real benefit of the property accrues, not to the trustee, but to the beneficiaries or other objects of the trust, "

The judicial definition of a trust as given by FABIYI, JSC in Ibekwe v. Nwost is as follows:

"Trust, simpliciter, is the right enforceable solely in equity to the beneficial enjoyment of property to which another person hold the legal title. It is a property interest held by one person (the trustee) at the request of another (the settlor) for the benefit of a third party (the beneficiary). For a trust to be valid, it must involve specific property. Certainty of subject matter is an important element in trust. It should reflect the settlor's intent and be created for a lawful purpose".

From the above definition, the feature of trust refers to the property vested in the trustees by the settlor or founder for the benefit of the beneficiaries. Trust, being the relationship resulting from the compulsion of a trustee in equity, to administrate property which he got by legal or equitable title, for the benefit of another or others (beneficiaries); is capable of diverse classifications. Among the many classifications, the two major classifications are express private and charitable trusts. These two classifications are most relevant when trust is being classified according to purpose.

Charitable or public trusts are set up with the objective of providing benefit to the general or a significant portion of the public. The Statute of Elizabeth, also known as the Charitable Uses Act 1601, is foremost in providing insight into what things can be termed as charitable. Although this Statute has been repealed by the Mortmain and Charitable Uses Act 1888, Section 13(2) of the latter Act preserved the provisions of its preamble, which contained a catalogue of objects that can be recognized as charitable. The list in modern orthography is as follows:

"The relief of aged, impotent and poor people: the maintenance of sick and maimed soldiers and mariners, school of learning, free schools and scholars 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 poor maids; the supportation, aid and help of young tradesmen, handicraftsmen, and persons decayed; the relief or redemption of prisoners or captives; the aid or ease of any poor inhabitants concerning payment of fifteen, setting out of soldiers and other taxes."

 Thus, trusts for the benefit of large groups of people, or to carry out certain purposes which are beneficial to the community at large will fall under the categories of charitable trusts. In Halsbury's Laws of England, the question what is charity is summed up as follows:

"To be charitable, a purpose must satisfy certain tests- whether the purpose is enforceable by the court...; whether the purpose is by analogy within the spirit and intendment of the ancient Statute of Elizabeth (sometimes referred to as the Charitable Uses Act, 1601, repealed by the Mortmain and Charitable Uses Act, 1888...except as regards the preamble, which is expressly preserved (s. 13(2)...); whether the purpose falls within any of the so-called four divisions of charity derived from that statute; and the overriding test whether the purpose is for the public benefit".

Two essential distinctive features of charitable trusts are that –

I) it must be for public benefit

ii) it must not be on the basis of personal relationship that the class of intended beneficiaries are chosen.

On the other hand, express private trusts are the trusts created by the express act of the owner of the property either intervivos or by will for the benefit of an individual or a group or class of individuals or for some private purposes. The usual objective of a private trust is to confer benefit on human objects (beneficiaries) on the basis of filial or other consideration. However, there is the possibility of creating private trust for non-human objects, and they are sometimes called “trusts of imperfect obligations” or “non-charitable trusts” such as trusts that make provision for building and maintaining tombs and monuments, trust created for taking care of animals, etc.

In creating either a charitable trust or express private, the requirement of certainty must be satisfied, otherwise the trust will fail and be void. The requirement of certainties as stated by Lord Langdale MR in Knight v. Knight includes the certainty of intention, the certainty of the subject matter and the certainty of object or beneficiary.

In spite of the similarities in these certainties, express private trust and charitable trust are two distinctive trusts created for different purposes. The following listed areas reflects the distinctions that exist between charitable and express private trusts.

DISTINCTIONS BETWEEN CHARITABLE TRUSTS AND PRIVATE TRUSTS

1. The Objective Of Creating The Trust

The objective of creating a charitable trust generally is to confer or provide benefit to the general public at large or a significant portion of it. In Re Crompton , where the purpose of creating the trust was for the education of the descendants of three named individuals only, it was held that the test or requirement of public benefit was not met. 

Also, in Iyanda v Ajike, where the testator directed his trustees to let one of his houses and use the income for the maintenance of a mosque attached to the family house, however, there was no suggestion that the public would be admitted to the prayer room. It was held that the trust was not charitable as it lacked the necessary element of public benefit.

Similarly, in Fatumola v Ogundimu, it was held that in order to qualify as charitable trust, it is an essential element that they should benefit the public at large and not a section of it and not only members of a religious sect.

Thus the purpose must fall within the spirit and intendment of the preamble to the Statute of Elizabeth, which provides a list of charitable objects. This list is now more simplified by the categorization provided by Lord Macnaghten in Commissioner of Income Tax v. Pemsel , which are:

i)Trusts for the relief of poverty; such as a gift for ladies of limited means, trust for the poor employees of a firm etc.

ii)Trusts for the advancement of education; such as a trust for the foundation of scholarship or professorship in a university etc.

iii)Trust for the advancement of religion; such as trust for mission works, trust for the fitting of a stained glass window in a church etc.

iv) Trusts for other purposes beneficial to the community; such as trust for the provision of hospital or fire brigade etc.

In The Case Of Christ's College Cambridge, a trust for the purpose of increasing the stipends of university teachers and fellows of colleges was held to be charitable.

On the other hand, the objective of creating a private trust is the provision of benefit to human objects based on filial or other considerations. The benefit is usually to an individual, a group/class of individuals or in pursuance of some private purpose. The objective therefore is not one that seeks to provide benefit to the public at large or a significant portion of it

2. The Relationship Between The Settlor and the Objects of the Trust

In a charitable trust, there must be exist no kind of nexus or other relationship existing between the settlor and the intended beneficiaries, as the presence of such relationship has been observed to result in a holding by the Court that such trust is not a charitable trust. Thus, the beneficiaries of a charitable must not be related to the settler/testator except where the trust created is for the relief of poverty.

 In Re Obabunmi Pedro,  a trust set up for the training of the grandchildren of the testator and other child was not counted as a charitable trust by the Court. Also, in Oppenheim v. Tobacco securities Trust Co. Ltd., the trust was for the education of children of employees and ex-employees of a particular company. The number of intended beneficiaries was even rapidly increasing into over a hundred thousand people. It was however held not to be a charitable trust on the ground that there was a personal relationship between the settlor and the potential beneficiaries. The same position was was held in Re Compton's case.

On the hand, express private trust can be created in favour of a beneficiary even though he shares a nexus with the settler/testator, regardless of the purpose of the trust.

3. The Certainty Of Human Beneficiary In The Trust

One of the requirements of certainty enlisted in Knight v. Knight in the creation of a valid trust is the certainty of objects or beneficiary. This indicates human beneficiaries. Thus, In Morice v. Bishop of Durham, the court per Sir William Grant stressed the importance of human objects in a private trust, holding that there must be someone in whose favour the court can decree performance. In Re Astor, a trust for the purpose of the maintenance of good understanding between nations and preservation of the independence and integrity of the newspapers was held void in the ground of uncertainty of objects and on the ground that a trust must have a human beneficiary who can enforce it. Also, in Re Shaw, a trust to devote funds for the purpose of pursuing inquiries into a new alphabet was held void for lack of human beneficiaries.

In a public trust however, vague words such as “for charity purposes” does not invalidate the trust. The presence or absence of human objects does not terminate a charitable trust, provided it is shown that the donor intended the property to be applied for charitable purposes, especially since it is not the beneficiaries, but the Attorney General that enforces a charitable trust. Therefore, the objects need not be certain.

4. The Enforcement Of The Trust

Upon the breach of the trust obligation in a charitable trust, the beneficiaries of the trust have no legal capacity to proceed against the trustee in order to enforce the trust; it is rather the Attorney-General of the state or of the federation as the case may be,  that has the locus standi to enforce charitable trusts.

 However, in express private trusts, the beneficiaries have the responsibility of enforcement against a defaulting trustee.

5. The Rule Of Perpetuity

The rule of perpetuity refers to the fact that the individuals which are the objects or beneficiaries of the trust and their beneficiary interest in the trust property must be identified/ascertained within the perpetuity period. The period is the lifetime of a person in existence with further addition of twenty-one years. Failure to do this within the perpetuity period renders the trust void. Under private trusts, the capital of such trust must not be rendered inalienable for longer than the perpetuity period; and any attempt to create such trust so as to apply its income to some private purpose in perpetuity will fail. The idea is to prevent the kind of disposition of property that postpones its absolute vesting forever or in perpetuities; as it ties up property and prevent its unhindered alienation. 

However, under charitable trusts, although the rule of perpetuity applies, it differs from private trust in the area of inalienability. This is because the rule of perpetuity’s rule against inalienablity does not apply to charitable trusts as held in Re Gwyon. 

In other words, charitable trust can validly remain inalienable, where the purpose of the trust is charitable and the income of the trust is continually used for charitable purposes. Thus, in Re Marriette, a trust for providing for an annual prize out of an income of a trust property for sport in a school is not against perpetuity period even though it is for an indefinite period.

6. The Application Of The Cypres Doctrine

The Cy-pres doctrine simply connotes the application of a trust property to some charitable purpose “as nearly as possible” resembling the original trusts, where such trust is initially or subsequently impracticable or impossible. 

Under private trusts, where the trust suffers initial ineffectiveness or subsequent failure, there is a resulting trust for the settlor, that is, the settlor or donor becomes the beneficiary, or the property results to his residuary estate if he is deceased. 

However, under a charitable trust, Cy-pres doctrine is applied, provided that a general charitable intention on the part of the settlor can be presumed. Moreover, under charitable trusts, this doctrine will also be applied regardless of the presence or absence of a general charitable intention, where an effective charitable trust becomes impracticable/impossible to carry out. 

In Re Davis, it was held that the inclusion of the gift in question by testator among other gifts which are charities is an indication of the interest. Also, in Re Lysaght, a gift to royal college of surgeon on trust for the establishment of studentship for persons not Jewish or Roman Catholics failed because the college refused to become a trustee to a trust with such discriminatory clause. The Cypres doctrine applied and the offending clause was deleted.

7. Tax or Fiscal Advantage

Charitable trusts may be excluded from income tax on rents, interest, dividends and annual payment so long as the income is applied for charitable purpose only.

Obviously, under private trusts, the income of such trust is not usually applied for charitable purposes; and so may not enjoy such tax advantages.

8. A trustee of a charitable trust cannot be a beneficiary to that public trust. On the other hand, in an express private trust, the beneficiaries can include the trustee.

9. The Period of a Trust’s Existence

A charitable trust may last for an indefinite or unlimited period of time. Since charitable trust can run in perpetuity, it does not necessarily revert to the estate of the testator/settler.  

On the other hand, an express private trust terminates when its private purpose is completed. There are also occasions where the trust or purported trust may fall back to the estate of the settler such as occasions of death or where the trust fails for uncertainty of object.

10.Control and oversight

In an express private trust, the beneficiaries have a high level of control and oversight over the trust assets, as they are the ones who will ultimately benefit from them. 

In a charitable trust, however, the beneficiaries have less control and oversight, as the assets are managed for the benefit of the general public.

CONCLUSION

In conclusion, having examined the differences between charitable trusts and express private trusts, it is therefore evident that the two classifications of trusts are distinctive from each other. The noted differences have being reflected or seen in situations such as the creation and the objective of the trusts, the relationship amongst the parties to a trust and the requirements of certainty among many others.

Thus, while an express private trust is created in favour of private individuals, public trust is for public and charitable purposes. The essentials of these two trusts and their implications differ and may be unfavourable if not well appreciated. One must therefore first determine the nature of the trust being created. This can therefore serve as guide while creating a particular trust.