Charitable Trusts

A charitable trust is a trust that is established for the benefit of one or more charitable purposes. It need not benefit a specific charity, but its overall goal must be charitable.

In the famous case of Commissioner for Special Purposes of Income Tax v Pemsel (1891), Lord MacNaghten established four main types of purposes that may considered charitable:

1. Poverty relief
2. Education
3. Religious Institutions
4. Other purposes beneficial to the community

To understand exactly how a charitable trust works, one must first know what a trust is. A trust is basically a collection of assets that is held by a third party (called the "trustee") for the benefit of a person or entity (called the beneficiary). The trustee has a duty to preserve the assets, and invest them in a manner that furthers the interests of the beneficiary.

Charitable trusts differ from normal trusts in a few ways. First, they are the only sort of trust allowed to be formed to further a purpose, as opposed to an individual. In other words, the "beneficiary" of a charitable trust can be, for example, the cause of ending world hunger. Second, charitable trusts are exempt from the Rule Against Perpetuities. My fellow lawyers will likely cringe at the mention of this rule, as it's the basis of some of the toughest exam questions in law school. In simple terms, though, this just means that charitable trusts can last forever. Further, a charitable trust is not necessarily void if its object is "not sufficiently certain," as a non-charitable trust may. More concretely, a charitable trust whose purpose cannot be fulfilled may be altered to benefit a different charitable purpose.

Charitable trusts can be formed by living persons, or in the form of bequests in wills. For more information on the various forms, advantages, and disadvantages of charitable trusts, please have a look at the links to the right.

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