¶ 2701
Overview
Scope of the chapter. Every trust examined so far in this book has had beneficiaries: persons who hold the equitable interest, who may call the trustee to account and who, in the last resort, can ask a court to compel performance. This chapter examines the trust that has none. A noncharitable purpose trust holds property for a purpose, such as owning the shares of a family company, maintaining a house or a collection, caring for an animal or keeping a grave, and has no person as its object. Because the purpose is not charitable, no attorney general stands behind it. The chapter covers the beneficiary principle that made such trusts void at common law, the narrow exceptions the courts allowed, the honorary trust, the line between a purpose trust and a trust for persons expressed in terms of a purpose, the Uniform Trust Code's sections 408 and 409, the state statutes that permit purpose trusts of unlimited or very long duration, the offshore regimes in the Cayman Islands, Jersey, Nevis, Belize and the Cook Islands, the office of the enforcer, the uses to which purpose trusts are put, their federal income tax treatment, and drafting.
Terminology. The vocabulary is unsettled, and the chapter uses it as follows. A charitable trust is a trust for a purpose the law recognizes as charitable, enforceable by the state's attorney general. A noncharitable purpose trust, or a purpose trust for short, is a trust whose objects are purposes that are not charitable and that has no beneficiary able to enforce it. An honorary trust is the common-law form of the same idea: a transfer for a specific noncharitable purpose that the transferee may carry out but cannot be compelled to perform. The person given standing to enforce a purpose trust is called an enforcer in Delaware, South Dakota, the Cayman Islands and Jersey, and a protector in Nevis and Belize. A hybrid purpose trust, in the South Dakota term, has both purposes and beneficiaries as objects. S.D. Codified Laws § 55-1-22.
The problem in one sentence. The law of private trusts rests on the proposition that someone must be able to make the trustee perform, and a purpose has no voice. Each regime discussed in this chapter answers that problem in one of two ways. The common law, and the honorary-trust doctrine that grew around its edges, treated the absence of an enforcing beneficiary as fatal, or as reducing the trust to a power the transferee was free to ignore. The modern statutes supply an enforcer by appointment, give that person the standing a beneficiary would have had, and in most cases remove the limit on duration that the honorary trust carried with it. The rest of the chapter is largely a study of how well that substitute works.
Relationship to other chapters. Purpose trusts appear throughout Part VI and Part VII as building blocks. The most common modern use, holding the shares of a private trust company, is treated in chapter 28 (see infra ch. 28), and the family-governance structures that often sit around it in chapter 29 (see infra ch. 29). Trusts that hold closely held companies under a statutory regime that relieves the trustee of the duty to interfere in management, including the British Virgin Islands VISTA trust, are treated in chapter 31 (see infra ch. 31). The enforcer has much in common with the protector, and Part III should be read alongside ¶ 2770 (see supra chs. 11–15). The limits public policy places on a settlor's purposes are examined in chapter 3 (see supra ¶ 370), and the perpetuities background in chapter 22 (see supra ch. 22).
Plan of the chapter. Paragraph 2710 states the beneficiary principle and its origin in Morice v. Bishop of Durham. Paragraph 2720 describes the anomalous exceptions and the honorary trust, with full discussions of Re Endacott and In re Estate of Searight. Paragraph 2730 explains why a trust expressed as a purpose may still be a trust for persons. Paragraph 2740 examines sections 408 and 409 of the Uniform Trust Code. Paragraph 2750 compares the state statutes that permit long-lived purpose trusts, and ¶ 2760 the offshore regimes. Paragraph 2770 is devoted to the enforcer. Paragraph 2780 surveys uses. Paragraph 2790 addresses federal income tax and drafting, with a checklist and model provisions.