Requirements of Charitable Trust Creation - Assignment Example

Trusts and Equity Name: Course: Instructor: Institution: Date of Submission Trusts and Equity Question 1: Charitable Trusts Charitable trusts according to the laws of Wales and England are form of express trusts that are dedicated for charitable goals (Thomson, 2005; Adukia, 2012). Requirements of Charitable Trust Creation Traditionally, Law of Charities is considered as law of trusts, because many of them are organised in trust. Charitable organisations may be organised in various forms: incorporated companies or unincorporated ones. However, the 2006 Act has introduced a new form of charitable organisation known as “Charitable Incorporated Organisation”, or CIO. In all cases, therefore the organisation will have expressed purposes as required by the law. The heads of the charitable trusts may be trustees or director of trusts. A charity therefore is an institution established for charitable purposes only and falls within the control of the High Court with respect to exercising its duties. The charitable purposes according to section2 (2) may only include: Advancement of education Relief/ Prevention of poverty Advancement of religion Saving life or improving health For community development or advancing citizenship Advancing arts, heritage, culture or science Improvement of amateur sport Advancement of animal welfare Environmental protection Conflict resolution Advancement of human rights For religious or racial harmony, equality and diversity Relief in reason for youth such as those who need medication Any other purposes as noted in subsection four. However for those in the sub section, must refer to those factors that seem analogous to the ones listed above and whose introduction into the law would seem inconsistent with the statutory definition of the purposes (Charity Commission, 2012). However, on the other side, the law says that it does not matter about the purpose/ motive of the person contributing to the charity. Therefore, his opinion also is irrelevant. In their formation, charities are expected to behave in manners, which are consistent with the convention of the European Convention on Human Rights. One should also note that charities are not considered as public bodies, but when they act in conjunction with the conventional public bodies, they may be caught by the law just like the public ones can be sued (Thomson, 2005; Adukia, 2012 ). When an organisation acquires the charitable status, there is certainty in the trust’s functioning. The purpose of trust will therefore fail if the function of the trust is not clearly stated. However, in the event of charities, even if the wording of the gift is vague, it will not mean that its purpose will be lost. For beneficiary principle, it will be needed that those bodies, which are responsible for the charities, are also responsible for its administration. It will be easier therefore for administration of its perpetuity. As some trusts are expected to go forever, rules will be set that will prohibit individuals from offending it. This may happen unless limitation is fully expressed. As under this principle then where charity fund is made up of perpetual income from a particular fund that is in perpetuity, will mean that it remains operational. However, most trusts oblige that funds be made in defined period. There is an exception to this rule when the gift is taken as a gift to other charities. This implies that when the fund has been sent to another charity, may not be bound to the time of the first charity. Charitable trusts are not also obliged by the law to make any contribution of income tax on any trading activities they get involved in so long as they are used exclusively on charity purposes listed above. Similarly, this applies to payments made with respect to inheritance. Additionally, capital gains made on capital will not also be liable to it so long as they are there for charitable purposes. On rates, charities are entitled a reduction of 80% in non-domestic rent. However, certain religious organisations’ buildings are wholly exempt (Thomson, 2005; Charity Commission, 2012). As requires the benefit, the gift should be of public benefits. This is opposed to particular individual(s) or a closed group of individuals. There is however, an exception in this as realised in Re Girls’ Public Day School Trust [1951]. The same exclusion underlies mutual benefits that are being beneficial for only those that have contributed to the fund. Some charitable trusts are normally obliged in charging fees. In administering these, the Commissioner will have to decide both direct and indirect benefits that a section of the public or the whole public would derive from charitable activities (Thomson, 2005). The Charity Commission Once one has is ready to fulfil the above requirements, he will have to conduct the Charity Commission, which is an Independent regulator of the charities in Wales and England. Therefore, most charities are required to register with it. The commission provide a wide range of regulation to the charities and has uncontested powers to intervene in all charities’ affairs if it feels that things are not going right. A trust can be registered and become appropriate even if it does not have membership and does not employ a significant number of staff. For one to register, he should ensure that he has comprehensive information about the process of start-ups. They will involve completing the trust deeds, executing it and ensuring that Human Resource Manager signs it, which will lead to the Application for registration. In the process, one will need witnesses for its administration with clear name of the charity and favourable objects. They will also need to reveal the source of the organisation’s capital and the application of funds obtained. Other provisions that will be dealt will include be those that concern powers of the trustee, statutory powers, delegation, duty of care and the extend of liability, appointment of the trustees, eligibility of trusteeship, termination of trusteeship vacancies calling for meeting and so forth. (b) Analyse the statement in the light of the decision in Attorney-General v Charity The case was a bid to determine the exactitude of the reference from the United Kingdom Attorney-General as regards the interpretation of paragraph 2(1) of schedule 1D concerning the Charities Act 1993 that was amended by the Charities Act 2006 in England and Wales. The main theme was to determine whether charities designed for poverty relief in which the designated receivers are connected by their, common employment, family relationship or unincorporated associations were in fact charitable or not. To be particular, it was the issue that sought to assess whether relief fund from a charitable organisation to reduce poverty could be directed to a restricted group of people or not. The major test came before the judges when it was realised that the Charities Act of 2006 had removed such categories to receive public benefits. Additionally, it was a common presumption among the parties that there was an important exemption of the Charity Commission, which had regarded the Charities Act 2006 Act as not affecting it. According to the 2006 Act, its section 2(2) made it clear that the relief or prevention of poverty was a charitable course. Therefore the aspect of the public benefit would be provided either by potential beneficiaries constituting a sufficient part of the population, however narrower it is, or by a significant portion of individuals that will benefit indirectly as a whole population, from the poverty relief. Although the Charity Commission had argued that trusts set for poverty relief was not obliged to be subjected to the 2006 Act, it provided that such trusts were therefore no longer charitable. This was to be so where in particular, individuals were conjoined with their relationship (Business School, 2012). In their ruling, their honours asserted that such a case was based on three issues for it to be solved. First, the Public benefit law as it was applied in relation to trusts before coming into force of the 2006 Act. Secondly, the basis on which charities for poverty relief amongst its beneficiaries was considered anomalous, or different from other charity classes. Lastly, they also considered the effect the 2006 Act upon coming into force had on the previously existing laws and hence how charities were affected in reference to the case (Business School, 2012). In settling the matter, their honours sought to differentiate the meaning of public benefits as used under various charities. In their interpretation, meaning of ‘public benefit’ meant merely that the charity will be required to be beneficial to the community while the second one meant that it should benefit a sufficient segment of the community. According to them, Trusts designated to alleviate poverty only needed to adhere to the first requirement but not the second one. This implied that relief charities for poverty alleviation had been exempted from the second requirement and it was immaterial if the section of the community was much that narrower (Business School, 2012). Before the 2006 Act was enforced, a charitable trust had to meet the two conditions, as was the case to the Elizabethan Statute. However when the issue was brought in the Upper Tribunal, it was emphatically rejected. The jury assessed that it was empathically important first of all to interpret the case by the purpose for which it was created. As it can be seen what should be charitable to satisfy the public benefit threshold varies from one case to another. For instance, a sufficient section in relation to a school may not be the same as that of the church. This therefore has to be tackled from the perspective of the institution’s purpose. In case of those charitable trusts that alleviate poverty to a certain number of restricted people, it is imperative that it goes directly to the narrower class. Confronted with the question whether trusts that are needed for relief or prevention of poverty will need different treatment under the law, their honours affirmed that due to the matter of logic and coherence, it required that the two principles be equally applied as far prevention and relief of poverty is concerned. Therefore, both the laws to prevent and to relieve were both charitable for the public benefit (Business School, 2012). Implication of the Case Decision The public benefits and therefore its implication can assume different meanings according to the kind of charity being considered. In The Independent Schools Council versus The Charity Commission from England and Wales it was decided the two senses of public benefits apply to Educational trusts. Legal experts content that this had been the case, even before and after the enforcement of the 2006 act. For instance in the school case, the Upper Tribunal had held that although the second sense of sufficiency section of the population was to be applied, it could be met by a number of schools in different ways under their choices, such as issuing fees remission or scholarship. Although, previously, the Upper Tribunal had put Poverty charities under an exception of the senses of public benefit rule, it has decided not to put a further extension on the relief and prevention of Poverty charitable trusts. Question 2 Mark Jones will contained the following clauses (amongst others) a) I give to my son, Daniel Jones, £500,000 believing that he will use it to do what I would have done for his children b) I give £250,000 to my brother Peter Jones and my friend Diane Thomas to hold on trust to provide a reasonable income to my aunt, Lucy Green, during her lifetime and on her death to give all that is left to my niece, Georgia. For any will to qualify as a valid trust, it must comply with two aspects of Trust Law: Certainty and Perpetuity. On Certainty On certainty, it should espouse certainty of intention, certainty of object(s) and certainty of subject matter. For certainty of subject matter, there is no need of using a technical term to set up a trust; this is to be consistent with the Equity Maxim that considers intent rather the form. The practical reasoning taken here is the one of fact, by determining whether the testator intended to make the trust or not. This implies that mere precatory words may not be admissible as a trust. On certainty of subject matter, it states that for declaration of any trust to be valid, specific property in the trust must be ascertained or it will be void. The beneficial level of interests in the property must themselves be certain. On certainty of the Object, it stresses that the beneficiary must be available and mentioned. On Perpetuity Since the purposes of the trust may last forever, offending the rules against perpetual trusts, limitations need to be set among the parties (FARRER & Co., 2009; Sayers, 1998; Partner, 2010). Currently the law has put it at 125 years (Cattell et al., 2013). Case 1 Issues In this case, the issue is whether mark has created a valid trust by adhering to all formalities required by the law in the creation of his will. In his will, he gives his son, Daniel Jones, £500,000 believing that he will use it to do what he would have done for his children. Formalities On Certainties There are no technical terms that must be provided to show certainty of intention. In order to determine whether the testator was intentionally making the trust or a wish, words such as hope, recommendation and wish, which are regarded as merely precatory will have to be accompanied by stronger verbs of intentions. Therefore, it will be upon the court itself to decide whether the will was a trust or not. For instance where the testator gave his wife full powers to spend his wealth the way she would like yielded to no trust (see Re Hutchinson and Tenant (1878), 8 Ch D 540). For the subject matter, the trust is supposed to be quantified (Hunter v Moss [1994] 3 All ER 215; cb, p.196). In case it is quantified as “Anything left”, it will be interpreted to the beneficiary as a gift, which will generally make the will to be void (Re Walker (1925), 56 OLR 517 (CA); cb, p.204). However, when it is put as “a reasonable income” the matter will be left at the discretion of the court. On object, Where the amount of trust is fixed, everybody will be sure about the amount he will get. However, for discretionary trusts, will mean that a settler gives the Trustee the discretion to distribute interests the way he wants to beneficiary. However, the class designated must be conceptually certain (Re Baden’s Deed Trusts (No.2) [1973] Ch 9). Nevertheless, if the trustee under discretionary powers may not act irrationally, the court will compel him (Re Manisty’s Settlement [1974] Ch.17) (Lecture Notes 2013; Brown, 2013). Perpetuity Period For perpetuity, 125 years will be the limiting period (Cattell et al., 2013). Application of the Law On certainty of intention, the problem arises when he says “he will use it to do what I would have done for his children”, this shows that he was only making a wish in that capacity and therefore it is not valid. On subject certainty, the amount is quantified but divisibility among the children is not clear. On object certainty, the beneficiary is partially articulated, but may need conceptual certainty that the court will administer for the administration of the law. Perpetuity Period Assuming that his son’s average procreation period is below 70 years, it is presumable that he followed the law. Conclusion The clause “he will use it to do what I would have done for his children” shows that his will is a wish and it is hard to determine how he would have done in case he was alive, apart from what he has been doing. Therefore, it is not a valid trust. Case 2 Issue It is about whether Mark, by giving £ 250,000 to his brother peter Jones and friend Diane Thomas to hold on trust and provide reasonable income to his Aunt, Lucy Green during her Lifetime and on her death to give the residue his niece, Georgia constituted a valid trust. Formalities On Certainties There are no technical terms that must be provided to show certainty of intention. In order to determine whether the testator was intentionally making the trust or a wish, words such as hope, recommendation and wish, which are regarded as merely precatory will have to be accompanied by stronger verbs of intentions. Therefore, it will be upon the court itself to decide whether the will was a trust or not. For instance where the testator gave his wife full powers to spend his wealth the way she would like yielded to no trust (see Re Hutchinson and Tenant (1878), 8 Ch D 540). For the subject matter, the trust is supposed to be quantified (Hunter v Moss [1994] 3 All ER 215; cb, p.196). In case it is quantified as “Anything left”, it will be interpreted to beneficiary as a gift, which will generally make the will to be void (Re Walker (1925), 56 OLR 517 (CA); cb, p.204). However, when it is put as “a reasonable income” the matter will be left at the discretion of the court. On Object, Where the amount of trust is fixed, everybody will be sure about the amount he will get. However, for discretionary trusts, will mean that a settler gives the Trustee the discretion to distribute interests the way he wants to beneficiary. However, the class designated must be conceptually certain (Re Baden’s Deed Trusts (No.2) [1973] Ch 9). Nevertheless, if the trustee under discretionary powers may not act irrationally, the court will compel him (Re Manisty’s Settlement [1974] Ch.17) (Lecture Notes 2013). Pepetuity Period For perpetuity, 125 years will be the limit (Cattell et al., 2013). Application of the Law On perpetuity, assuming him and his Brother Peter Jones, Aunty Green and Diane were not more than seventy years at the time of the making the trust, they would be right if the niece had already been born. On certainty of intention, the trust is valid as it shows the intention of putting £250,000 to hold on trust. On subject certainty, he is also certain because he has put a quantified figure that everyone can see. By using the term “reasonable income” is right but the reasonable amount of interest to be given to his Aunt Green will have to be determined by the court. Since niece Georgia will only be entitled to what remains after Lucy Green dies, Peter Jones and Diane Thomas have discretionary powers on how to distribute the wealth to her. If they refuse, the court would compel them to do so and ensure that they act rationally. Therefore, the trust is a valid since it has successfully passed all formalities. Conclusion The Will forms a valid trust as seen above through the Application of the law. References Adukia, R. (2012).Handbook On Laws Governing Formation and Administration of Charitable Organisations in India. Brown, E.G.J. (2013). Guide for Charities. California Attorney General. Business School. (2012). Her Majesty’s Attorney-General v The Charity Commission for England and Wales (The Upper Tribunal (Tax and Chancery Chamber), Warren and Cattell, J. et al. (2010).United Kingdom: Perpetuities and Accumulations Act 2009 Update. Mondaq. Retrieved on 13 November 2013 from http://www.mondaq.com/x/93094/inheritance+tax/Perpetuities+And+Accumulations+Act+2009+Update. Charity Commission. (2012). Starting Up: Charitable Trusts: Model Trust Deed. Lecture Notes. (2013). Trusts. Partner, J.K. (2010). The Rule against Perpetuities. WYNN Williams Lawyers FARRER & Co. (2009).Perpetuities and Accumulations Act 2009 – A more flexible Framework for new trusts. Sayers M. (1998). The Rules against Perpetuities and Excessive Accumulation. The Law Commission (Britain). Thomson, A. (2005). Taxation of Charity Income and Gains. My law Chamber. Read More