Rule Against Perpetuities:
Generally, a charitable trust must have as its “purpose” some activity of such general public interest and benefit as to come within the meaning of the term “charitable.” The purpose must in some way benefit, improve or uplift mankind mentally, morally, physically or spiritually.
Categories of “charitable” purposes often get their definition by society. For instance, the relief of poverty is universally recognized by society as a charitable purpose. Additionally, the advancement of education and religion, promotion of health and governmental purposes has also been deemed to be beneficial to the community.
EXAMPLE: Lourdes enjoyed the outdoors. As such, she created a trust “to maintain parks in the U.S.” This purpose would be construed as improving government, a valid charitable purpose. In addition, a large class of individuals who use the nation’s parks would be benefited from this trust. Furthermore, taxpayers would be relieved of financing these beautification campaigns, which is generally a governmental function.
Charitable purpose is distinguished from the settlor’s motive (i.e., the reason for establishing the trust) because courts are unconcerned with why a settlor does something. Rather, the trust purpose is the ultimate objective the trust was created to accomplish; therefore, it must fall within one of the allowable categories.
Relief of poverty
The relief of poverty is a viable charitable purpose because society generally has the desire to alleviate suffering in the community. Often, these types of trusts provide food, clothing, shelter and other necessities of life to the needy in the community. The trust’s charitable purpose will not fail even if it may benefit some less indigent people in carrying out its mission.
EXAMPLE: A trust for “fatherless children” is probably permissible as a charitable trust although some more well-to-do children (albeit still fatherless) may benefit from the trust’s purpose.
Trusts to alleviate suffering can also be extended to animals. The same requirement applies—an indefinite number of animals must be the target of the trust. If the trust is established to only benefit the settlor’s own pet (e.g., “income for life to support my cat, Frisky”), that purpose would not be considered charitable.
Educationally-oriented trusts that benefit indefinite members of the public are considered charitable. This support can include establishing or supporting schools, libraries, museums or similar institutions. The aid to these institutions can be directed at the students, teachers or research activities.
Like with trusts to lessen poverty, the recipients of an educational trust do not all have to be poor persons because spreading educational knowledge would be beneficial to society at large. The education label for a trust, however, is narrowly tailored to only include non-profit institutions. See, e.g., In re Estate of Sutro, 155 Cal. 727 (1909); Butterworth v. Keeler, 219 N.Y. 446 (1916).
When the education disseminated involves politics, courts are split as to whether this endeavor qualifies as a charitable purpose. Nevertheless, in most jurisdictions, these types of trusts have been upheld as charitable. See, e.g., In re Estate of Breeden, 208 Cal. App. 3d 981 (1989).
The key is that some substantial group of people is interested in the view and ideas being promoted. Yet, trusts to promote a particular political party are not considered charitable because subsidizing just one political party does not generally benefit society. See, e.g., In re Grossman’s Estate, 190 Misc. 521 (N.Y. Surr. Ct. 1947).
In addition, trusts whose primary function is lobbying, as a means to improve laws or the form of government, have been upheld as charitable under trust law, but not for tax purposes. See, e.g., Girard Trust Co. v. Commissioner of Internal Revenue, 122 F.2d 108 (3d Cir. 1941). As such, the settlor’s attempt to establish this type of trust would not receive favorable tax treatment.
EXAMPLE: Quincy established a trust to promote his interest in non-partisan elections. To further his belief, the trust’s main function was to lobby various local, state and federal governments for support. Annually, the organization has a fundraiser, charging $250 a person. Under trust law, this trust would qualify as a charitable trust, with an education focus. Yet, any donations to the trusts (e.g., the $250 per person donation for the fundraiser), would not receive favorable tax treatment, namely a tax deduction, due to its focus on lobbying.
Naturally, a trust that is formed to promote an illegal, irrational or immoral cause will not be upheld as a charitable trust. See, e.g., Medical Society v. South Carolina National Bank, 14 S.E.2d 577 (S.C. 1941).
EXAMPLE: Nathanial wanted to establish a trust to educate the public on the benefits of legalizing drugs in the U.S. Since this purpose is illegal, the trust would not be upheld as a charitable trust.
Generally, trusts created for the maintenance and support of religion, including funding for religious services, places of worship and salaries of religious workers are considered charitable. In certain instances, defining religion has potentially controversial implications.
Despite the subjective nature of approving one’s religious beliefs, some courts have rejected trusts where the beliefs were so “irrational” or “inconsequential” as to be of no community interest. Unsurprisingly, groups advocating illegal or immoral acts have been held not to qualify as charitable. See, e.g., Potter v. United States, 79 F. Supp. 297 (N.D. Ill. 1946).
Trusts that strive to cure disease or promote health are considered charitable. In particular, expenditures to maintain hospitals, encourage medical research and education, to name a few, fall well within the charitable category. See, e.g., Sheen v. Sheen, 8 A.2d 136 (N.J. 1939).
If the proposed trust fails to qualify under any of the mandated charitable trust categories, it could still qualify as a private trust, as long as it complies with the other requirements of private trusts, i.e. definiteness of beneficiaries and the Rule Against Perpetuities.
“Mixed purpose” trusts (i.e., those with a dual charitable and non-charitable purpose) also fail if the two are inseparable.
EXAMPLE: Stockard bequeaths $200,000 to Evan “to hold in trust for the benefit of all schools in Phoenix, AZ.” Bianca (Stockard’s daughter) is the residuary legatee. Some schools in Phoenix are public and charitable institutions and some are private and operated for profit. Stockard did not specify what portion of the $200,000 was to be used for public schools and how much for private schools. As such, since the two types are inseparable, the whole trust fails. Instead, the funds pass to Bianca via a resulting trust.
Yet, “split interest” such as charitable remainder (i.e., those with a private purpose, followed by a charitable purpose) and charitable lead (i.e., those with a charitable purpose, followed by a private purpose) trusts are permitted. (They will be discussed in more detail in a later section.)