Public Benefit

Terms:


Public benefit:
There must be an indefinite number of potential beneficiaries for a charitable trust to be valid.

Trust:
A trust is a fiduciary relationship with respect to specific property, to which the trustee holds the legal title for the benefit of one or more persons, who hold equitable title as beneficiaries. Thus, two forms of ownership interests—legal and equitable—exist in the same property at the same time.

Res/trust property:
The subject matter of a trust or will. The interest the trustee holds for the beneficiaries.

Settlor (aka trustor, donor, transferor, grantor, testator):
The settlor is the person who creates the trust, either by inter vivos transfer or by will.

Trustee:
The trustee is the person or entity (e.g., a bank or other corporation) who holds legal title to the trust property.

Beneficiary:
A beneficiary is a person for whose benefit the trust property is held by the trustee.

Fiduciary:
A person or institution who manages money or property for another and who must exercise a standard of care in such management activity.

Declaration of trust:
The act by which the person who holds legal title to property or an estate acknowledges and declares that he holds the same in trust for the use of another person or for certain specified purposes.

Inter vivos trust:
Trust created during lifetime of settlor and to become effective in his lifetime.

Testamentary trust:
Trust that takes effect at the death of the settlor or testator.

Power of appointment:
A power or authority conferred by one person by deed or will upon another to appoint (i.e., select and nominate), the person or persons who are to receive and enjoy an estate or an income from a fund, after the testator’s death.


In the previous chapter on private trusts, one of the requirements for the validity of a private trust was it had to have at least one identifiable beneficiary. In contrast, a charitable trust must benefit either society or a sufficiently broad segment of the population—an indefinite number of potential beneficiaries.

As a public trust, a charitable trust must have six distinct elements to be valid:

  1. an intention of the settlor to create a trust;
  2. a trustee to administer the trust;
  3. a res or subject matter;
  4. a charitable purpose expressly designated;
  5. a definite class to be benefited; and
  6. indefinite beneficiaries (within the defined class) who actually receive the benefit.

Another difference between charitable trusts and other trusts is that the Attorney General (instead of individual beneficiaries) in the trust’s jurisdiction is the person who has the authority to enforce the charitable trust on behalf of the community.

EXAMPLE: Archibald established a trust “to educate some boy or girl in science or art.” Since there is only the possibility of one beneficiary, this trust does not meet a public purpose (indefinite number of beneficiaries) and would fail as a charitable trust. See, e.g., In re Estate of Huebner, 127 Cal. App. 244 (1932).

This example represents an outdated view of how many beneficiaries must be benefited before the charitable trust remains valid. Today, a high degree of indefiniteness is not essential to a charitable trust. Rather, a single recipient or class of definitely ascertainable people who would benefit directly from the trust does not invalidate the trust if:

  1. the recipient will be selected from a definite group (i.e., all high school seniors of a particular state); and
  2. the recipient’s being so benefited would be sufficiently in the general public interest that the community as a whole could be said to be the ultimate beneficiary of the trust.

EXAMPLE: Archibald established a trust for the education of “a child . . . preferably one who is handicapped.” This has been upheld as a charitable purpose. See, e.g., Chapman’s Estate, 39 Pa. D. & C.2d 701 (1965).

A charitable trust is created in the same manner as a private express trust:

  • declaration of trust;
  • transfer in trust (either inter vivos or by will);
  • exercise of power of appointment; and
  • contract.

EXAMPLE: Ava’s will left her residuary estate “to Reverend Elijah Harrison, to be used by him at his discretion for religious and education purposes.” This testamentary trust is a valid method to create a charitable trust. Religion and education are per se permitted charitable purposes (discussed in the next section), Ava’s intentions were clear, there is a trustee associated with the trust and the type of beneficiary to be aided is also proper. See, e.g., Yeager v. Johns, 484 S.W.2d 211 (1972).