All About Estates

A different kind of trust, a different set of rules

In 21 x 3, I wrote about three, sometimes tricky, trust rules:  the 21-year deemed dispositon rule; the rule against accumulations; and, the rule against perpetuities.  Following the post, I realized I had not been specific enough when a reader – esteemed charitable foundation advisor and former colleague, David Windeyer – questioned whether the rule against perpetuities applies to charitable trusts.  Instead of simply answering David directly with a “not really”, I thought I’d take this opportunity to address not only this particular question, but to also provide an overview of some of the other differences between personal and charitable trusts.

The rules I discussed apply to personal and other non-charitable trusts.  The rules were created to achieve particular public policy objectives, to wit, the regular recognition of capital gains and payment of tax and the importance to society of keeping private money in circulation.  Charitable trusts – charitable giving in general – are subject to a different set of rules that reflect a different public policy objective, that is:  charitable giving is a good thing and should be encouraged.

To that end, charitable trusts are subject to a different governance regime, with several unique advantages available only to charitable trusts.  For example:

  1. the rule against perpetuities, practically speaking,  does not apply to charitable trusts
  2. rules relating to accumulation of income do not apply to charitable trusts
  3. the 21-year deemed disposition rule does not apply to charitable trusts
  4. a charitable trust is an exception to the rule that purpose trusts are void (however, in order to be valid,  a charitable purpose trust must be for the public benefit and support one of the “four heads of charity”:  relief of poverty, advancement of religion, advancement of education, other purposes beneficial to the community)
  5. a charitable trust is an exception to the rule (sometimes called the “certainty of objects” rule) that all trusts must have an identifiable beneficiaryor beneficiaries
  6. availablility of the cy-près doctrine
  7. income tax advantages

The rules applicable to personal trusts are generally designed to limit the use of such trusts, for reasons of public policy. In contrast, a different public policy goal – to encourage charitable giving – has resulted in a regime in which charitable trusts (and charitable giving in general) are not only exempt from many of these constrainsts, they are afforded additional favourable treatment in order to encourage their use.

Thanks for reading.


About Elaine Blades