By Nizam Shajani, CPA, CA, MBA
November 13, 2020
A charitable purpose trust is a trust for a purpose that is recognized under the common law as a ‘charitable purpose’. This is not the same thing as a ‘charity’.
Non-profit organizations are exempt from tax. Charitable organizations are given an additional advantage, as they can give donors tax receipts for donations that the donors can then use to decrease their taxable income.
Trusts require beneficiaries to enforce the Trust Deed. However, Purpose Trusts are considered invalid due to the lack of a beneficiary to enforce the trust. There are also issues with rules against perpetuities, uncertain purposes and invalid testamentary dispositions. However, this can be mitigated through the Charitable Purpose Trust. The beneficiary to enforce the trust is addressed by having the Attorney General or Public Trustee enforce the trust. Charitable purpose trusts may be of perpetual duration with the trust property subject to cy-pres power. Cy-pres allows for the reallocation of property devoted to charitable purposes that are impossible or impracticable to carry out.
The reason given for the requirement that charitable purpose trusts must be exclusively for charitable purposes is if a trustee were given discretion to use funds for non-charitable purposes then it would be hard to enforce the charitable purpose.
There are three requirements for a charitable purpose trust:
o An exclusive dedication of property
o To a charitable purpose
o In a way that provides a public benefit
That is not a political purpose.
Tests for whether a charitable purpose provides a ‘public benefit’ to a given scenario include:
o There must be a benefit of some kind
o The benefit must be to the public.
There are four categories (or heads) of ‘charitable purposes’
o Relief of poverty
o Advancement of education
o Advancement of religion
o Other purposes beneficial to the community
helping the old, young or disabled
caring for the sick
providing for hospitals or health care
providing for disaster relief
care of veterans
aid to prisoners
provision of amenities such as parks
cemeteries or cremation societies, and
provision for animal welfare.
If you are considering setting up a Charitable Purpose Trust, it is prudent to talk to a professional. We are here to help.
This information is for discussion purposes only and should not be considered professional advice. There is no guarantee or warrant of information on this site and it should be noted that rules and laws change regularly. You should consult a professional before considering implementing or taking any action based on information on this site. Call our team for a consultation before taking any action. © 2020 Shajani LLP