A Trust with a Purpose
March 3, 2021
As discussed in our article What is a Trust?, a trust usually requires one or more beneficiaries – people who are entitled to the benefits of the property legally owned and controlled by the trustee.
Sometimes, however, people who create a trust wish to do so to benefit a particular purpose, rather than individual people. Perhaps the most common example is a charitable trust.
Charitable trusts, more properly called trusts for charitable purposes, have long been recognized as valid in Ontario law – it is part of the centuries old tradition of English trusts law that dates back in Ontario to before Confederation.
Other forms of purpose trusts are sometimes created, either in a will or while the donor is still alive. Examples include trusts:
- to promote world peace
- to maintain a grave site
- so girls can learn soccer skills
- to provide a trophy for a sporting event
- to feed a beloved pet
- to provide sport facilities
However, as in England, Ontario law generally does not recognize trusts for purposes other than charitable trusts as valid. This is because of:
- the fact that “There must be somebody, in whose favour the court can decree performance”; that is, someone who can sue the trustees if they do not do their jobs
- concern about the rule against perpetuities – an obscure rule of law that requires that in time, any trust eventually become the beneficial property of known persons, to prevent trust funds just accumulating forever
- issues surrounding execution (uncertainty preventing whether the trustee knows that they have performed as intended)
- concern about excessive delegation of powers to trustees to decide who benefits
This “rule” against the validity of purpose trusts is not strictly followed. From early times, exceptions were recognized for trusts benefiting pets, or to maintain a grave site.
Although those limited categories are considered closed, the modern trend is to find ways to validate purpose trusts, either through case law or legislation.
In Ontario, the Perpetuities Act contains a section which recognizes as valid most purposes trusts which “create no enforceable equitable interest in a specific person” as long as the trustee appoints a person or persons to be beneficiaries within twenty-one years. This provision does not save purpose trusts that are created in favour of an illegal purpose, or a purpose contrary to public policy.
If the technical provisions of that Act are too strict, case law recognizes that a purpose trust which creates a class of potential beneficiaries may be valid because there is somebody who can sue.
Finally, courts will take a broad definition of what is a ‘trust in favour of persons’ rather than ‘a trust for purposes’. This saves, for example, pension fund trusts, by recognizing that they benefit the members of the pension fund, even though their specific identities may not be known at any given point in time, and more persons may be added.
These saving provisions are some relief and reassurance to donors, but the best way to make sure a trust is valid is to have the trust document drawn up by a knowledgeable lawyer. This is one of the reasons why we consider homemade wills to be dangerous, even though they may sometimes be valid in Ontario. The cost of a professionally prepared will is a small price to pay to know that your wishes will be carried out.