Trust Of Imperfect Obligation

Trust Of Imperfect Obligation
Trust Of Imperfect Obligation
Quick Summary of Trust Of Imperfect Obligation

A trust of imperfect obligation, also known as a discretionary trust, is a type of trust arrangement where the trustee has the discretion to determine how the trust assets will be distributed among the beneficiaries. Unlike trusts with fixed or specific obligations, where the beneficiaries have a legally enforceable right to the trust assets, a trust of imperfect obligation grants the trustee flexibility in determining when and how distributions will be made. This discretion allows trustees to consider various factors, such as the needs, circumstances, and welfare of the beneficiaries, when making distribution decisions. Trusts of imperfect obligation are commonly used to provide for beneficiaries whose needs or circumstances may change over time, allowing trustees to adapt to evolving circumstances and ensure that the trust assets are used most effectively for the benefit of the beneficiaries.

What is the dictionary definition of Trust Of Imperfect Obligation?
Dictionary Definition of Trust Of Imperfect Obligation

A trust deemed valid but whose obligations the courts would not compel the trustees to carry out. (Hence, the obligations of this trust are ‘imperfect’.). Normally, a trust that creates an obligation on the trustees beyond the duty to benefit any ascertainable object(s) will be held invalid (see, e.g., beneficiary principle) unless it is a charitable trust. The term ‘trust of imperfect obligation’ is not a precise one, and different authors have used it to describe one or both of the following types of trust:

  1. A trust possessing ascertainable human beneficiaries but with a supervening purpose. An example is Re Osaba (1979), where the trustees were directed to apply the fund towards the university education of the settlor’s daughter. The court interpreted this trust as for the benefit of the daughter, albeit with the supervening purpose of providing for her education.
  2. An anomalous valid private purpose trust, such as the one described in Re Endacott (1960), whose designated purpose was the maintenance of a grave.

Quite obviously, the difference between these two categories is that the Osaba trust specified a human beneficiary, whereas the Endacott trust did not. Consequently, the first category may not represent a strong exception to the beneficiary principle, while the second category certainly does.

A trust of the form described in Re Denley’s Trust Deed (1969) would probably not be described as a trust of imperfect obligation since the court found it possible to construe the trust as allowing for (human) beneficiaries who could properly enforce it.

Full Definition Of Trust Of Imperfect Obligation

In the realm of trust law, the concept of “trust of imperfect obligation” holds a distinctive position. Unlike typical trusts, which are usually established for the benefit of identifiable beneficiaries, trusts of imperfect obligation are established for purposes rather than beneficiaries. These trusts often raise unique legal questions and challenges, particularly concerning their enforceability and the extent to which they can be recognised by the courts. This overview will delve into the fundamental principles, historical context, legal requirements, and key case law pertaining to trusts of imperfect obligation within the British legal framework.

Definition and Characteristics

A trust of imperfect obligation, also known as a purpose trust, is a trust established for a specific purpose rather than for the benefit of particular individuals or a class of beneficiaries. This kind of trust is generally considered to be an exception to the beneficiary principle, which mandates that for a trust to be valid, there must be a certain or ascertainable beneficiary capable of enforcing the trust.

Characteristics:

  • Purpose-Driven: The primary characteristic of a trust of imperfect obligation is that it is created to fulfil a specific purpose.
  • Lack of Direct Beneficiaries: These trusts do not have clearly defined beneficiaries who can enforce the trust.
  • Enforcement Challenges: Due to the absence of beneficiaries, enforcement can be problematic, often relying on the court’s discretion or the appointment of an enforcer.
  • Limited Recognition: Such trusts are not universally recognised and are often subject to stringent conditions.

Historical Context

The concept of trusts of imperfect obligation has evolved over centuries, influenced by landmark cases and statutory developments. Historically, English law has been reluctant to recognise purposeful trusts due to their deviation from the beneficiary principle. However, certain exceptions have emerged, particularly in cases involving charitable trusts, which are inherently purposeful trusts but benefit from statutory recognition and favourable treatment under the law.

Historical Milestones:

  • Morice v. Bishop of Durham (1804): This case is pivotal as it highlighted the necessity for identifiable beneficiaries in trusts, setting a precedent that purposeful trusts are generally invalid unless they fall within specific exceptions.
  • Re Astor’s Settlement Trusts (1952): This case reinforced the principle that non-charitable purpose trusts are typically invalid due to the lack of identifiable beneficiaries.

Legal Requirements and Validity

To establish a trust of imperfect obligation, certain legal requirements must be met. The validity of such trusts hinges on the following criteria:

  • Certainty of Purpose: The purpose of the trust must be clearly defined and specific.
  • Perpetuity: The trust must comply with the rule against perpetuities, meaning it must not last indefinitely.
  • Enforcement Mechanism: There must be a mechanism for enforcing the trust, often through the appointment of an enforcer.
  • Legal Recognition: The trust must fall within recognised categories of valid-purpose trusts.

Recognised Categories:

  • Charitable Trusts: These are the most well-known and widely accepted forms of purposeful trusts. They must benefit the public or a section of the public and fall within the purposes defined in the Charities Act 2011.
  • Testamentary Trusts: Certain trusts established through wills for specific purposes, such as the maintenance of graves or animals, can be valid under specific conditions.
  • Miscellaneous Categories: These include trusts for the erection and maintenance of monuments or for the saying of private masses.

Key Case Law

Several key cases have shaped the legal landscape of trusts of imperfect obligation. The following cases illustrate the courts’ approach to these trusts:

  • Morice v. Bishop of Durham (1804): This case established the principle that a trust must have certain or ascertainable beneficiaries to be valid, except for charitable trusts.
  • Re Endacott (1960): The court in this case reaffirmed the principle that non-charitable purpose trusts are generally invalid unless they fall within a specific, limited category.
  • Re Astor’s Settlement Trusts (1952): The court held that a trust established for the maintenance of good understanding between nations and the preservation of independence of newspapers was invalid due to the lack of identifiable beneficiaries and the indefinite nature of the purpose.
  • Re Denley’s Trust Deed (1969): This case introduced a more flexible approach, suggesting that if a trust’s purpose indirectly benefits identifiable individuals, it may be valid.

Enforceability and Administration

One of the critical challenges with trusts of imperfect obligation is their enforceability. Since these trusts lack direct beneficiaries, the courts often have to ensure that the trust’s purpose is fulfilled. This can involve appointing an enforcer or relying on the settlor’s intention to provide guidance.

Enforcement Mechanisms:

  1. Enforcers: An individual or entity appointed to ensure the trust’s purpose is carried out.
  2. Court Supervision: The courts can oversee the administration of the trust to ensure compliance with its terms.
  3. Statutory Provisions: In the case of charitable trusts, specific statutory provisions exist to facilitate enforcement.

Contemporary Developments

Recent developments in trust law have seen a growing recognition of certain non-charitable purpose trusts, particularly in offshore jurisdictions. These jurisdictions have enacted legislation specifically permitting purposeful trusts, often with fewer restrictions than those found in traditional English law.

Offshore Jurisdictions:

  • Jersey: The Trusts (Jersey) Law 1984 permits the establishment of non-charitable purpose trusts, provided there is an enforcer.
  • Cayman Islands: The Cayman Islands Special Trusts (Alternative Regime) Law (STAR) allows for the creation of purposeful trusts with designated enforcers.
  • : Bermuda’s Trusts (Special Provisions) Act 1989 also provides a framework for non-charitable purpose trusts.

Conclusion

Trusts of imperfect obligation occupy a unique niche in the landscape of trust law. While their recognition and enforceability have historically been limited, particularly under English law, specific categories and offshore developments have expanded their applicability. Understanding these trusts requires a nuanced appreciation of their purpose-driven nature, the challenges of enforcement, and the evolving legal frameworks that support their use. As legal principles continue to adapt, trusts of imperfect obligation may find broader acceptance, particularly in jurisdictions willing to innovate beyond traditional constraints.

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Disclaimer

This site contains general legal information but does not constitute professional legal advice for your particular situation. Persuing this glossary does not create an attorney-client or legal adviser relationship. If you have specific questions, please consult a qualified attorney licensed in your jurisdiction.

This glossary post was last updated: 6th June 2024.

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