Charitable Trusts

In the introductory web page of this Canadian Trust Law Chamber we said that, in principle, trusts can not be set up to benefit a purpose. An exception has been made for charities, provided that they are ascertainable.

The fundamental reason why, in principle, purpose trusts are ignored by equity is because there is no person with legal standing to enforce the trust. A purpose is not a person; only a person can get the ear of a court. "A gift on trust must have a cestui que trust," it was said in Re Astor's Settlement Trusts (1952) Ch. 534. "A court of equity does not recognize as valid a trust which it cannot enforce and control. This seems to me to be good equity and good sense."

Charitable trusts are different because the provincial governments are legally said to be general supervisors of charities so, where a charitable trust needs to be upheld in a court of law, the Attorney-General in each province has the inherent jurisdiction to do so. If the trustee of a non-charitable trust breaches the trust, there is nobody that can go to court to underwrite a breach of trust action. For that reason, equity does not recognize or enforce non-charity purpose trusts.

There are several advantages to charitable trusts. First of all, they are exempt from the perpetuity rule, a rule of law (mostly statutory in Canada) against establishing a trust that lasts forever ("in perpetuity") and in which the trust property never vests to the beneficiary. Also, if a charitable trust appears, on a strict interpretation of it's terms, to be impracticable or impossible, a court may exercise it's inherent cy-près jurisdiction and amend the trust to give it effect as close as possible to the intent of the settlor. Another advantage of charitable trusts, but outside the scope of this article, are significant tax benefits.

The origin of this major exception of trust law in favour of charitable trusts is, as is all trust law, to be found in England. In 1601, England enacted the Statute of Charitable Uses (commonly referred to as the "Statute of Elizabeth"). Charities were not worthy of our common law ancestors. To promote charities, it was felt necessary to cover them with the protection of the law of trusts. Here is an extract from the preamble of the 1601 English statute:

Whereas lands, goods (and) money have been given as by sundry other well-disposed persons, some for the relief of aged and poor persons, some for the maintenance of sick and maimed soldiers and mariners, schools of learning, free schools and scholars in universities, some for repair of bridges, ports, causeways, churches, sea-banks and highways, some for education and preferment of orphans, some for or towards relief or maintenance of houses of correction, some for marriages of poor maids, some for aid and help of young tradesmen, which lands, goods (and) money have not been employed according to the charitable intent of the givers and founders thereof, by reason of frauds, breach of trust and negligence in those that should pay (and) deliver same.

This preamble has been at the root of modern charity law ever since, including the trust law heading of Charitable Trusts. In the first two centuries of the 1601 Statute of Charitable Uses, all purpose trusts were thought to be charitable if there was any public benefit. But then, in 1804, the famous case of Morice v. The Bishop of Durham decided that the trust, in order to be enforceable as a charitable trust, had to relate to one or more of the headings of the 1601 preamble. It should also be noted that the preamble does not purport to be an exhaustive list of all charities but, rather, to serve as a guide.

In Commissioners for Special Purposes of the Income Tax v. Pemsel (1891) AC 531, the English judge summarized the preamble as follows:

"Charity in its legal sense comprises four principal divisions: trusts for the relief of poverty, trust for the advancement of education, trusts for the advancement of religion, and trusts for other purposes beneficial to the community, not falling under any of the preceding heads."

So, if a certain "charitable" purpose is identified in a trust, if it is synonymous with one of the headings of the preamble (and adjusting the headings, if necessary, to the modern day), it will be held to be a valid charitable trust.

Ontario has introduced special legislation which Canadian courts have decided has altered the scope and effect of the English law in this regard and, according to some experts, has rejected the application of the doctrine as set in the Morice case, at least as concerns Ontario, and has opened up the field in Ontario.

Ontario excepted, then, for a trust to be charitable in Canada it must (1) be for the public benefit and (2) fall under one of the headings of the 1601 preamble. Some important elements to remember on the subject of "public benefit":

• The trust must benefit the public at-large or at least a sizeable segment of the public;
• The relationship between the intended beneficiaries must be impersonal and cannot depend on their personal relationship to a particular individual;
• It is acceptable if the purpose is foreign such as "famine victims in Ethiopia";
• A trust for political purposes is void because "the court has no means of judging whether a proposed change in the law will or will not be for the public benefit and therefore cannot say that a gift to secure the change is a charitable gift" (Re Patriotic Fund (1951) Dominion Law Reports 624).

The Four Heads of Charity

Relief of Poverty

There is an exception to the rule that charitable trusts under this heading have to show a "public benefit". This is for "poor relations" or "poor employees", in which case the personal relationship disqualification mentioned above, is lifted. In Jones v. Executive Officers of the T. Eaton Co. (1973) Supreme Court Reports 635, the Supreme Court of Canada held as valid a trust set up to assist "any needy or deserving Toronto member of the Eaton Quarter Century Club." The Club was merely a loose group of employees that had been recognized for 25 years service to the T. Eaton Company.

Advancement of Religion

Although the 1601 preamble only refers to "the repair of churches", the reference has been expanded to included virtually all church endeavours. For example, court have approved charitable trusts under this heading where they provide a new church bell, burial grounds, missions or trusts to support ministers. But the courts will not recognize polytheistic (belief in more than one God) religions under this heading nor trusts for "ethics" organizations like the Free Masons. Closed religious orders have been a problem for the court. Gilmour v. Coats (1949) AC 426 found them not to be eligible as charitable trusts saying that "the faithful must embrace their faith believing where they cannot prove. The court can act only on proof."

Advancement of Education

Under this heading, it does not matter that the students of the chosen school are rich or poor, or that the trust establishes a scholarship rather than direct payments to a school. Trusts favouring cultural training are valid as are trusts for vocational training provided that, under this latter heading, the benefit is not restricted to the advancement of a private benefit.

In Law of Trusts in Canada, 1984: Carswell, p. 591, Professor Waters says that "when the sporting activities to be furthered are part of the furthering of education, then the sporting purpose in question may well be perceived as contributing to the attaintment of the main charitable purpose." Canadian courts have now extended the heading to capture trusts set up to benefit amateur sports (Re Laidlaw Foundation (1984) 13 Dominion Law Reports 491).

Trusts for the advancements of the arts are captured under this heading. But if the purpose is political, the courts will not allow it. George Bernard Shaw's will left a trust for the development of a new alphabet. The English court held it to be "political" and would not allow it. In another case, Incorporated Council of Law Reporting for England and Wales v. Attorney-General (1972) Ch. 73, the Council argued that it was charitable trust. The Attorney-General argued that it was a publisher and seller of products and the product supported the profession of it's members. The court upheld the position of the Council noting that it was a non-profit organization and that it's products were not just to the benefit of lawyers but also others "to study and to acquaint himself with, and instruct himself in, the law of this country." But in another case (Re Pinion (1965) Ch. 85), that borders on the comical, an English artist, who's work was described as "atrociously bad", asked to set up a trust in his will to establish a museum of his "art." The proposed trustee declined and the court was asked for direction. It held that this was not a trust for the advancement of education or the arts. The court refused to allow the will to stand as a charitable trust. "For myself," the judge wrote, "a reading of the will leads me rather to the view that the testator's object was not to educate anyone, but to perpetuate his own name. I can conceive of no useful object to be served in foisting upon the public this mass of junk. It has neither public utility nor educative value."

Other Purposes Beneficial to the Community

This heading is for those trusts which do not fall under one of the heading above and which still might be captured as a charitable trust. Not all items under this heading are not to be found verbatim in the 1601 preamble but includes items which fall "within the spirit and intendment of" the 1601 preamble and which would be amenable to contemporary conditions as they might influence the scope of the 1601 preamble.

Under this heading, as above, it matters not that the trust ultimately benefits the rich or the poor (eg. a trust to benefit a hospital). The heading also requires that a trust benefit not only a segment of the public, but a large, "sufficient", "broad" or "appreciable" segment of the population. English and Canadian case-law and academic studies abound under this heading. Here are some purposes captured under the heading:

• Relief of the old or disabled, other than under the heading of "poverty."
• "Public works" are captured under this heading. Such works do not have to benefit the entire country. So too are trusts that benefit the government.
• This heading would capture the relief of animal suffering.

That ends the discussion under the four headings. A word should also be said of trusts which mix both charitable purposes with non-charitable purposes. Some provinces solve the problem such as section 44 of B.C.'s Law and Equity Act:

44. Where a person gives ... property in trust for a charitable purpose that is linked conjunctively or disjunctively in the instrument by which the trust is created with a non charitable purpose, and the gift ... would be void for uncertainty or remoteness, the gift ... is not thereby invalid but operates solely for the benefit of the charitable purpose.

But even without the statute, equity allows the severability of the non-charitable part of a mixed purpose trust where severability is possible; where the main purpose is charitable and where, if the purpose is not charitable, it is transferred to a trustee whose work is charitable (eg. a bishop). This latter example was the subject of Blais v. Touchet (1963) Supreme Court Reports 358, in which Canada's highest court reviewed a trust which was not clearly for a charitable purpose but the settlor chose a bishop as trustee. "This branch of the law of charities is suffering from over-technicality," said Justice Judson for the majority. "I join with others who have said that they do not wish to add to it. This particular gift to the bishop is charitable by virtue of his office."

Charitable trusts also avoid the application of the rule against perpetuities.

When a charitable trust is impossible or impractical, the courts have the jurisdiction to construct a trust as near as possible to the original intention of the settlor. This is known as the cy-près power. Cy-près means "as near as may be" and is a technical word used in the law of trusts or of wills to refer to a power that the courts have to, rather than void the document, to construct or interpret the will or a trust document "as near as may be" to the actual intentions of the signatory, where a literal construction would give the document illegal, impracticable or impossible effect. English courts can be quite strict and refuse to exercise their cy-près jurisdiction such as in Re Spence (1979) Ch. 483 when it was declined because one of the beneficiary-charity identified in the will had changed substantially by the time of the settlor's death. The cy-près jurisdiction is certainly relevant when a charity goes out of business after the trust comes into effect. The court will then select another, similar charity as it did in Re Fitzpatrick (1984) 6 Dominion Law Reports 644. Cy-près has even be used to remove a racist requirement of a charitable trust (Canada Trust v. Ontario Human Rights Commission (1990) 69 Dominion Law Reports 321).

Finally, the courts have extended a few rare exceptions to the general rule that non-charity trusts are invalid and will not be protected by courts of equity. These exceptions include grave and monument maintenance and animal care and fox hunting(!). But modern case law is leaning towards a more liberal approach to these trusts. A trust for creating a sporting grounds was upheld in Re Denley's Trusts (1969) 1 Ch. 373 by some innovative and courageous legal reasoning by the judge who concluded that the users of the grounds would have sufficient legal standing to enforce the trust. The decision is also of assistance in allowing unincorporated associations to receive trust benefit. In addition, some provinces have enacted legislation that manoeuvres around this difficulty by providing that non-charitable purpose trusts can be valid for 21 years.