Trusts: The Beneficiary Principle and Perpetuity

This article centres on the beneficiary principle and the perpetuity rule, considering their application to non-charitable private purpose trusts and the recognised exceptions to the general rules.

The Beneficiary Principle

This principle requires trust property to be held for identified beneficiaries or objects and is therefore closely related to the certainty of objects. Subject to certain exceptions, a private trust cannot be created 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. This principle was reiterated in Leahy v Attorney General for New South Wales [1959] HCA 20, where the court stated that ‘a trust may be created for the benefit of persons [...] but not a purpose.’

A clear example of a trust failing for want of objects can be seen in Re Astor’s Settlement Trusts [1952]. Here, the settlor purported to create a trust for various purposes, including establishing schemes for the relief or benefit of those engaged in journalism and protecting the independence of newspaper writers. However, as these were not charitable purposes, the trust was void. Roxburgh J stated that ‘a trustee would not be expected to be subject to an equitable obligation unless there was somebody who could enforce a correlative equitable right’, reiterating 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 requires there to be identifiable objects who can enforce the trust. Therefore, non-charitable private purpose trusts will generally be invalid unless they fall within one of the recognised exceptions, namely trusts for the creation or maintenance of tombs and monuments or trusts for specific animals.

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 section 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.

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, section 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, it must fall within a recognised exception to the beneficiary principle and must not go against the rules of perpetuity.