Trusts: The Beneficiary Principle and Perpetuity

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When dealing with trusts, it is important to know how an express trust can be created, as well as knowing the need for establishing the three certainties, and satisfying the beneficiary principle. This principle means that the trust property must be held on trust for identified beneficiaries or objects; thus, it is similar to the final of the three certainties. Under the principle, subject to exceptions, a private trust cannot be for a purpose.

In Morice v Bishop of Durham [1804] EWHC Ch J80 the Court of Appeal held that non-charitable purposes were void for want of objects. In this case the rationale behind the beneficiary principle was explained. The court stated that without certain objects, the trustees are not subjected to any obligations. The beneficiary principle was reiterated in Leahy v Attorney General for New South Wales [1959] HCA 20: ‘a trust may be created for the benefit of persons […] but not a purpose.’ A clear example of where a trust failed for want of objects is in Re Astor’s Settlement Trusts [1952]. In this case the settlor purported to make a trust for a variety of purposes including the establishment of schemes for the relief or benefit of a person engaged in journalism, and the protection of the independence of writers in newspapers. However, as these are not charitable purposes the trust was void. Roxburgh J said ‘a trustee would not be expected to be subject to an equitable obligation unless there was somebody who could enforce a correlative equitable right’, this reiterates the position established in Morice v Bishop of Durham.

However, there are two specific exceptions to the beneficiary principle in relation to non-charitable private purpose trusts. The first is a trust for the creation or maintenance of tombs and monuments. This category is narrowly construed by the courts. They want the trust to be specific about the nature of the construction, the purpose and any benefit arising from it. This is clear in the decision in Re Endacott [1959] EWCA Civ 5, where a bequest to leave £60,000 to the ‘North Tawton Parish Council for the purpose of providing some useful memorial to myself’ was held not to be valid as it was too vague. The second exception is a trust for specific animals such as pets. Theoretically you cannot have a trust for a pet because legally a pet is regarded as property. However, in Pettingall v Pettingall [1842] 11 LJ Ch 176, there was a valid trust for a horse. The disposition in this case was £50 per year for the maintenance of the testator’s favourite horse, which the executor of his estate had promised to honour. The court held that there was a trust because the residuary legatee could enforce the trust.

In essence, the beneficiary principle is that there must be identifiable objects of a trust, who can enforce the trust. This means non-charitable private purpose trusts cannot be valid unless they are for the creation/maintenance of tombs and monuments or for specific animals; the recognised exceptions to this principle.

The Perpetuity Rule

When property is left on trust for beneficiaries, the property must vest in individuals within a recognised period of time. If this does not occur within the relevant time period, the interest in the property may be void. This rule is in place to stop property being indefinitely unavailable. It also applies to equitable interests under a trust with a condition precedent attached. If the condition is not satisfied within the required time period, the interest will lapse.

The perpetuity period at common law is 21 years. The common law allows for an extension of this period through a ‘life in being’ being expressly specified. This is where the period is extended to the duration of an identified person’s life; it is common in non-charitable purpose trusts. Under this time period, the trust property must vest within 21 years of the creation of the trust. However, this has now been changed by s 5 of the Perpetuities and Accumulations Act 2009. This section has changed the perpetuity period to 125 years. Therefore, the trust property must vest within 125 years of the creation of the trust.

However, this is problematic for purpose trusts as the trust property will never vest in an ascertainable beneficiary. This means the property will remain inalienable i.e. it cannot be disposed of. Therefore, s 15 of the 2009 Act states that the 125 year perpetuity period does not apply in relation to purpose trusts. The significance of the rule against perpetuity can be seen in Musset v Bingle [1876] WN 170. In this case, two dispositions in the testator’s will were contested. The first disposition was that £300 was to be used for the purpose of constructing a memorial. The second disposition was that £200 should be set aside for the maintenance of that memorial. The court held the first disposition was valid because it was a recognised exception to the no non-charitable purpose trust rule, and the second disposition was void for going against the rules of perpetuity as no duration of maintenance was stated. This case can be contrasted with Re Hooper [1932] 1 Ch 38, where a disposition for the maintenance of tombs and monuments was held to be valid. The distinction is this case was that the disposition stated they should maintain the monuments as long as they could legally do so, which was held to be 21 years under the common law.

Therefore, for private purpose trusts to be valid, they must come within the exceptions to the rule mentioned above, and they must not go against the rules of perpetuity.